-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EP3hZqqrRTj8RVfZJZeCIAdj6HRu/EzT2S+hmM5tcZI3DPSmPLVMxCMXrYJD0ZdZ PXL/QvMePcNOZE+Bzfjd1Q== 0000040779-97-000012.txt : 19970425 0000040779-97-000012.hdr.sgml : 19970425 ACCESSION NUMBER: 0000040779-97-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 34 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970310 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL PUBLIC UTILITIES CORP /PA/ CENTRAL INDEX KEY: 0000040779 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 135516589 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06047 FILM NUMBER: 97554112 BUSINESS ADDRESS: STREET 1: 100 INTERPACE PKWY CITY: PARSIPPANY STATE: NJ ZIP: 07054 BUSINESS PHONE: 2012636500 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JERSEY CENTRAL POWER & LIGHT CO CENTRAL INDEX KEY: 0000053456 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 210485010 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03141 FILM NUMBER: 97554113 BUSINESS ADDRESS: STREET 1: 300 MADISON AVE CITY: MORRISTOWN STATE: NJ ZIP: 079621911 BUSINESS PHONE: 2014558200 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN EDISON CO CENTRAL INDEX KEY: 0000065350 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 230870160 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-51001 FILM NUMBER: 97554114 BUSINESS ADDRESS: STREET 1: 2800 POTTSVILLE PIKE STREET 2: MUHLENBERG TOWNSHIP CITY: BERKS COUNTY STATE: PA ZIP: 19605 BUSINESS PHONE: 2159293601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA ELECTRIC CO CENTRAL INDEX KEY: 0000077227 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 250718085 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03522 FILM NUMBER: 97554115 BUSINESS ADDRESS: STREET 1: 2800 POTTSVILLE PIKE READING STREET 2: MUHLENBERG TOWNSHIP CITY: BERKS COUNTY STATE: PA ZIP: 19640-0001 BUSINESS PHONE: 8145338111 10-K 1 REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-6047 GPU, Inc. 13-5516989 (a Pennsylvania corporation) (formerly General Public Utilities Corporation) 100 Interpace Parkway Parsippany, New Jersey 07054-1149 Telephone (201) 263-6500 1-3141 Jersey Central Power & Light Company 21-0485010 (a New Jersey corporation) 2800 Pottsville Pike Reading, Pennsylvania 19605 Telephone (610) 929-3601 1-446 Metropolitan Edison Company 23-0870160 (a Pennsylvania corporation) 2800 Pottsville Pike Reading, Pennsylvania 19605 Telephone (610) 929-3601 1-3522 Pennsylvania Electric Company 25-0718085 (a Pennsylvania corporation) 2800 Pottsville Pike Reading, Pennsylvania 19605 Telephone (610) 929-3601 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Registrant Title of each class which registered GPU, Inc. Common Stock, par value $2.50 per share New York Stock Exchange Jersey Central Power & Cumulative Preferred Light Company Stock, $100 stated value 4% Series New York Stock Exchange 7.88% Series E New York Stock Exchange Name of each exchange Registrant Title of each class which registered Jersey Central Power & First Mortgage Bonds: Light Company (cont.) 7 1/8% Series due 2004 New York Stock Exchange 6 3/8% Series due 2003 New York Stock Exchange 7 1/2% Series due 2023 New York Stock Exchange 6 3/4% Series due 2025 New York Stock Exchange Monthly Income Preferred Securities, 8.56% Series A, $25 stated Value (a) New York Stock Exchange Metropolitan Edison Monthly Income Preferred Company Securities, 9% Series A, $25 stated value (b) New York Stock Exchange Pennsylvania Electric Cumulative Preferred Company Stock, $100 stated value: 4.40% Series B Philadelphia Stock Exchange 3.70% Series C Philadelphia Stock Exchange 4.05% Series D Philadelphia Stock Exchange 4.70% Series E Philadelphia Stock Exchange 4.50% Series F Philadelphia Stock Exchange 4.60% Series G Philadelphia Stock Exchange Monthly Income Preferred Securities, 8 3/4% Series A, $25 stated value (c) New York Stock Exchange (a) Issued by JCP&L Capital, L.P., and unconditionally guaranteed by Jersey Central Power & Light Company. (b) Issued by Met-Ed Capital, L.P., and unconditionally guaranteed by Metropolitan Edison Company. (c) Issued by Penelec Capital, L.P., and unconditionally guaranteed by Pennsylvania Electric Company. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of each registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrants' voting stock held by non-affiliates as of February 3, 1997 was: Registrant Amount GPU, Inc. $4,007,836,032 The number of shares outstanding of each of the registrants' classes of voting stock as of February 3, 1997 was as follows: Shares Registrant Title Outstanding GPU, Inc. Common Stock, $2.50 par value 120,615,517 Jersey Central Power & Light Company Common Stock, $10 par value 15,371,270 Metropolitan Edison Company Common Stock, no par value 859,500 Pennsylvania Electric Company Common Stock, $20 par value 5,290,596 DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for 1997 Annual Meeting of Stockholders of GPU, Inc. (Part III) _____________________________________________________________________________ This combined Form 10-K is separately filed by GPU, Inc., Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. TABLE OF CONTENTS Page Number Part I Item 1. Business 1 Item 2. Properties 43 Item 3. Legal Proceedings 46 Item 4. Submission of Matters to a Vote of Security Holders 46 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 47 Item 6. Selected Financial Data 47 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 48 Item 8. Financial Statements and Supplementary Data 48 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 48 Part III Item 10. Directors and Executive Officers of the Registrant 49 Item 11. Executive Compensation 54 Item 12. Security Ownership of Certain Beneficial Owners and Management 58 Item 13. Certain Relationships and Related Transactions 58 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 59 Signatures 71 PART I ITEM 1. BUSINESS. GPU, Inc., a Pennsylvania corporation, organized in 1946, is a holding company registered under the Public Utility Holding Company Act of 1935 (1935 Act). GPU, Inc. does not operate any utility properties directly, but owns all of the outstanding common stock of three domestic electric utilities serving customers in New Jersey - Jersey Central Power & Light Company (JCP&L), incorporated under the laws of New Jersey in 1925, - and in Pennsylvania - Metropolitan Edison Company (Met-Ed), a Pennsylvania corporation incorporated in 1922, and Pennsylvania Electric Company (Penelec), a Pennsylvania corporation incorporated in 1919. In 1996, the customer service, transmission and distribution operations of these electric utilities began doing business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The generation operations of these three electric utilities are conducted by GPU Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). GPU, Inc. also owns all the common stock of GPU International, Inc., GPU Power, Inc. and GPU Electric, Inc., which primarily develop, own and operate electric generation, transmission and distribution facilities and supply businesses in the U.S. and foreign countries. Collectively, these are referred to as the "GPU International Group." Corporate functions are performed by GPU Service, Inc. (GPUS). All of these companies considered together are referred to as "GPU." The GPU registered holding company system is subject to regulation by the Securities and Exchange Commission (SEC) under the 1935 Act. Retail rates, conditions of service, issuance of securities and other matters relating to the GPU Energy companies are subject to regulation in the state in which each utility operates - in New Jersey by the New Jersey Board of Public Utilities (NJBPU) and in Pennsylvania by the Pennsylvania Public Utility Commission (PaPUC). The Nuclear Regulatory Commission (NRC) regulates the construction, ownership and operation of nuclear generating stations. The GPU Energy companies are also subject to wholesale rate and other regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act. In addition, certain GPU International Group foreign subsidiaries are subject to limited rate and other regulation (see Regulation section). This Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements made that are not historical facts are forward-looking and, accordingly, involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Although such forward-looking statements have been based on reasonable assumptions, there is no assurance that the expected results will be achieved. Some of the factors that could cause actual results to differ materially include, but are not limited to: the effects of regulatory decisions; changes in law and other governmental actions and initiatives; the impact of deregulation and increased competition in the industry; industry restructuring; expected outcomes of legal proceedings; generating plant performance; fuel prices and availability; and uncertainties involved with foreign operations including political risks and foreign currency fluctuations. 1 RECENT DEVELOPMENTS During the past year, there were a number of major developments which are expected to significantly affect GPU. They are as follows: - In 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners Holdings (Holdings), a 50/50 joint venture, to acquire Midlands Electricity plc (Midlands), an English regional electric company. A wholly-owned subsidiary of Holdings purchased the outstanding shares of Midlands through a cash tender offer of 1.7 billion pounds, or approximately U.S. $2.6 billion. GPU's 50% interest in Holdings is held by EI UK Holdings, Inc. (EI UK), a wholly-owned subsidiary of GPU Electric, Inc. At December 31, 1996, EI UK had borrowed approximately 342 million pounds, or approximately U.S. $586 million, through a GPU, Inc. guaranteed five-year bank term loan facility, to fund its investment in Holdings. At December 31, 1996, Holdings had borrowed approximately 1.1 billion pounds, or approximately U.S. $1.8 billion, through a term loan and revolving credit facility to provide for the balance of the acquisition price. Midlands supplies and distributes electricity to 2.2 million customers in England in an area with a population of five million. Midlands also owns a generation business that produces electricity domestically and internationally and a gas supply company that provides natural gas to 8,000 customers in England. In addition, Midlands owns international generation projects and is pursuing additional international generation and transmission projects. - Pennsylvania adopted comprehensive legislation which provides for the restructuring of the electric utility industry. The legislation, among other things, permits one-third of Pennsylvania retail consumers to choose their electric supplier beginning January 1, 1999, and all retail consumers by January 1, 2001. The legislation requires the unbundling of rates for transmission, distribution and generation services. Utilities would have the opportunity to recover their prudently incurred stranded costs that result from customers choosing another supplier through a PaPUC approved competitive transition charge, subject to certain conditions, including that they attempt to mitigate these costs. The legislation provides utilities the opportunity to reduce their stranded costs through the sale of transition bonds by a separate trust or other similar entity, with maturities of up to 10 years. Principal and interest payments on the bonds would be paid by all distribution service customers through a nonbypassable intangible transition charge. Among other things, the sale proceeds could be used to buy out or buy down uneconomic nonutility generation (NUG) contracts, to reduce capitalization, or both. Reduced financing costs associated with the sale of transition bonds would be used to provide rate reductions for all customers. Pennsylvania electric utilities are required to submit restructuring plans to the PaPUC between April 1, 1997 and September 30, 1997. Met-Ed and Penelec are scheduled to file their respective plans with the PaPUC on June 1, 1997. The PaPUC is required to conduct public hearings prior 2 to approval of these plans. Effective January 1, 1997, transmission and distribution rates charged to Pennsylvania retail customers are generally capped for 4 1/2 years, and generation rates are generally capped for up to nine years. Transmission and distribution of electricity will continue as a regulated monopoly and the PaPUC will ensure that adequate electrical reserves exist to maintain reliable service. An independent system operator (ISO) will be responsible for coordinating the generation and transmission of electricity in an efficient and nondiscriminatory manner. - The NJBPU released Phase II of the New Jersey Energy Master Plan (NJEMP) which recommends, among other things, that certain electric retail customers be permitted to choose their supplier beginning October 1998, expanding to include all retail customers by April 2001. The NJBPU also recommends a near-term electric rate reduction of 5% to 10% with the phase-in of retail competition, and combined with the effects of separate proposed modifications to the state's energy tax policy, an aggregate rate reduction of at least 10% to 15% over time. The NJBPU proposes in this report that utilities have an opportunity to recover their stranded costs associated with generating capacity commitments provided that they attempt to mitigate these costs. Also, NUG contracts which cannot be mitigated would be eligible for stranded cost recovery. The determination of stranded cost recovery by the NJBPU would be undertaken on a case-by-case basis, with no guarantee for full recovery of these costs. A separate market transition charge (MTC) would be established for each utility to allow utilities to recover stranded costs over four to eight years. The MTC would be capped to ensure that customers experience the NJBPU's recommended overall rate reduction of 5% to 10%. New Jersey is also considering authorizing the sale of securitized transition bonds as a mechanism to help mitigate stranded costs. In addition, the NJBPU is proposing that, beginning October 1998, utilities unbundle their rates to allow customers to choose their electric generation supplier. Transmission and distribution of electricity would continue as a regulated monopoly and utilities would be responsible for connecting customers to the system and for providing distribution service. Transmission service would be provided by an ISO, who would be responsible for maintaining the reliability of the regional power grid. The NJBPU intends to issue its final findings and recommendations to the Governor and the Legislature for their consideration in March 1997. The NJBPU proposes requiring electric utilities in New Jersey to file for review, by no later than July 15, 1997, complete restructuring plans, stranded cost filings and unbundled rate filings, and intends to complete its review of these filings by October 1998. - The FERC issued Order 888, which requires utilities to provide open access to their transmission network, thereby encouraging a fully competitive wholesale electric power market. It also requires electric utilities to, among other things: (1) file nondiscriminatory open access transmission tariffs which would be available to all wholesale sellers and buyers of electricity; (2) accept service under these new tariffs for 3 their own wholesale transactions; and (3) be permitted to recover their legitimate and verifiable stranded costs incurred when a wholesale customer purchases power from another supplier using the utility's transmission system. While it does not require corporate unbundling (i.e. the disposing of ancillary services or creating separate affiliates to manage transmission services), Order 888 does call for functional unbundling of transmission and ancillary services. The GPU Energy companies filed pro forma tariffs in accordance with Order 888. These tariffs became effective on July 9, 1996. The GPU Energy companies, along with six other electric utility members of the Pennsylvania-New Jersey-Maryland (PJM) Power Pool (together, the supporting PJM companies), filed with the FERC a transmission tariff and agreements (including, among other things, establishing an ISO to operate the energy market and transmission system), that would create a new wholesale energy market to meet the requirements of Order 888, and to increase competition in the Mid-Atlantic region. In response to a FERC order, noting deficiencies and objections to their initial submission, the PJM companies submitted to the FERC a revised proposal which represents an interim solution and contains several unresolved issues for which alternate proposals were presented to the FERC for resolution. On February 28, 1997, the FERC issued an order directing PJM to adopt all recommendations proposed by the supporting PJM companies except with regard to congestion pricing, which the FERC ordered implementation of PECO Energy's proposal on an interim basis. The FERC has stated that it expects it will order PJM to adopt the supporting PJM companies' proposal on congestion pricing after certain issues are resolved concerning implementation of this proposal. PJM has begun implementation of the FERC's order and plans to have the restructured PJM Power Pool and pool-wide open access transmission tariff operational on April 1, 1997. For additional information, see Competitive Environment, Management's Discussion and Analysis. - The GPU Energy companies have successfully bought out and/or entered into restructured power purchase agreements with all major unbuilt NUG projects with which they had executed power purchase agreements. Since early 1995, nine NUG contracts representing 950 MW (JCP&L 300 MW; Met-Ed 490 MW; Penelec 160 MW) have been bought out and/or restructured at more competitive prices. The GPU Energy companies expect these actions will save their customers approximately $5.4 billion (JCP&L $1.8 billion; Met- Ed $2.3 billion; Penelec $1.3 billion) over 25 years. INDUSTRY DEVELOPMENTS Electric utility customers have traditionally been served by vertically integrated regulated monopolies. The electric utility industry is moving away from a traditional rate regulated environment based on cost recovery to some combination of a competitive marketplace and modified regulation. The enactment of the Public Utility Regulatory Policies Act of 1978 (PURPA) facilitated the entry of competitors into the electric generation business. The Energy Policy Act of 1992 (EPAct) furthered competition among utilities and NUGs in the wholesale electric generation market, accelerating industry restructuring. As discussed earlier, Pennsylvania recently adopted 4 comprehensive legislation which provides for the restructuring of the electric utility industry, and New Jersey has proposed similar legislation. Operating in a competitive environment places pressures on utility profit margins and credit quality. Utilities with significantly higher cost structures than are supportable in the marketplace will experience reduced earnings as they attempt to meet their customers' demands for lower-priced electricity. Competitive forces continue to influence some retail pricing. In some cases, commercial and industrial customers have indicated their intention to pursue competitively priced electricity from other providers, and in some instances have obtained price concessions from utilities. This prospect of increasing competition in the electric utility industry has already led the major credit rating agencies to apply more stringent guidelines in making credit rating determinations. The combination of the current market price of electricity being below that of utility owned generation and power purchase commitments, as well as the ability of some customers to choose their energy suppliers, has created the potential for stranded costs in the electric utility industry. These stranded costs, while recoverable in a regulated environment, are at risk in a deregulated competitive environment. The GPU Energy companies estimate that their total potential above market costs relating to power purchase commitments, above market generation costs, generating plant decommissioning costs and regulatory assets at year end 1998, on a present value basis, could range from $4.5 billion to $8 billion (JCP&L $2.5 billion to $4 billion; Met-Ed $1 billion to $2 billion; Penelec $1 billion to $2 billion). The estimate is subject to significant uncertainties including the future market price of both electricity and other competitive energy sources, as well as the timing of when these above market costs become stranded due to customers choosing another supplier. As discussed below, the restructuring legislation in Pennsylvania and the proposed restructuring plan in New Jersey provide mechanisms for utilities to recover, subject to regulatory approval, their above market costs. These regulatory recovery mechanisms in Pennsylvania and New Jersey will differ, but should allow for the recovery of non-mitigable above market costs through either distribution charges or separate nonbypassable charges to customers. In response to competitive forces and regulatory changes, GPU is considering various strategies designed to enhance its competitive position and to increase its ability to adapt to, and anticipate changes in, its business. GPU expects that its primary strategic focus will be on the delivery infrastructure, retail supply and customer services segments of the electric power industry. To this end, GPU is actively reviewing its portfolio of assets, particularly nuclear and fossil generating facilities, for consistency with this strategic focus. GPU is aware that a number of nonaffiliated utilities in the Northeast and in California are in the process of selling some or all of their generation assets in response to regulatory and competitive pressures. GPU's strategies may also include business combinations with other companies, internal restructurings involving the complete or partial separation of its wholesale and retail businesses, acquisitions of other businesses, and additions to its transmission or distribution businesses. No assurance can be given as to whether or when any potential transaction of the type described above may actually occur, or as to the ultimate effect thereof on the financial condition or competitive position of GPU. 5 OTHER DEVELOPMENTS AND GPU INITIATIVES During 1996 and early 1997, there were other state and federal regulatory developments and GPU initiatives relating to competition within the electric utility industry which are described below: - The PaPUC has issued a final order that sets forth the guidelines for retail access pilot programs in Pennsylvania. These pilot programs will include residential, commercial and industrial class customers, and utilities are required to commit about 5% of load to retail access programs and unbundle their rates to allow customers to choose their electric generation supplier. In March 1997, Met-Ed and Penelec filed with the PaPUC their plan for a proposed pilot program that would offer approximately 51,000 (Met-Ed 23,000; Penelec 28,000) customers choice of their electric generation supplier. The pilot program, which is subject to PaPUC approval, is anticipated to begin in the fourth quarter of 1997 and will be in effect for at least one year. - JCP&L is awaiting NJBPU approval of a plan to establish a one-year pilot program offering customers in Monroe Township, New Jersey a choice of their electric energy supplier. At the end of the first year, Monroe Township will have the option of renewing the pilot. Monroe Township had been exploring the possibility of establishing its own municipal electric system. - In early 1997, two pieces of legislation were introduced in Congress which provide for a comprehensive restructuring of the electric utility industry, including retail choice for all utility customers beginning as early as December 2000, the opportunity for utilities to recover their prudently incurred stranded costs, and repeal of both PURPA and the 1935 Act. It is expected that other similar proposed legislation will be introduced in Congress during 1997. - Federal legislation was enacted which, among other things, permits registered holding company systems to acquire interests in telecommunications companies. In addition, the SEC has adopted Rule 58 under the 1935 Act which permits registered holding company systems to engage in a variety of energy-related services without further SEC authorization. In February 1997, GPU formed a new, nonregulated subsidiary, GPU Advanced Resources, Inc. (AR). AR's lines of business may include telecommunications services, energy services and retail energy sales. - GPU reduced its total workforce by 8% in 1996 through voluntary enhanced retirement programs which were accepted by 493 bargaining and 347 nonbargaining employees. - Met-Ed and Penelec filed tariff supplements with the PaPUC requesting approval to, among other things, include their currently effective energy cost rates (ECR) and state tax adjustment surcharges (STAS) in base rates, effective for all bills rendered after January 1, 1997. On February 28, 1997, the PaPUC issued a final order approving this request. - Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," applies to regulated utilities that have the ability to recover their costs through rates 6 established by regulators and charged to customers. If a portion of the GPU Energy companies' operations continues to be regulated, FAS 71 accounting may only be applied to that portion. Insofar as the GPU Energy companies are concerned, potentially unrecoverable costs will most likely be related to generation investment, power purchase contracts, and regulatory assets, which are deferred accounting transactions whose value depends on the GPU Energy companies' ability to recover such costs from their respective customers in the future. In markets where there is excess capacity (as is currently the case in the Mid-Atlantic and surrounding regions which include New Jersey and Pennsylvania) and many available sources of power supply, the market price of electricity is expected to be lower than what would be necessary to support full recovery of the investment in the generating facilities. Also, utilities that are locked into expensive power purchase agreements may be forced to value the contracts at market prices and recognize certain losses. Although the GPU Energy companies continue to be subject to cost-based ratemaking regulation, in the event that either all or a portion of their operations are no longer subject to FAS 71 provisions, the related regulatory assets, net of regulatory liabilities, would have to be written off and charged to expense. In addition, any above market costs of power purchase commitments would have to be expensed, and additional depreciation expense would have to be recorded for any differences created by the use of a regulated depreciation method that is different from that which would have been used under generally accepted accounting principles for enterprises in general. The experience gained from the deregulation of the telecommunications industry indicates that substantial write-offs may result with the discontinuation of FAS 71. At this time, GPU is unable to determine when and to what extent FAS 71 will no longer be applicable. THE GPU ENERGY COMPANIES The electric generating and transmission facilities of the GPU Energy companies are physically interconnected and are operated as a single integrated and coordinated system serving a population of approximately five million in New Jersey and Pennsylvania. For the year 1996, the GPU Energy companies' revenues were about equally divided between Pennsylvania customers and New Jersey customers. During 1996, sales to customers by customer class were as follows: % Operating Revenues % KWH Sales Total JCP&L Met-Ed Penelec Total JCP&L Met-Ed Penelec Residential 42 45 42 37 36 41 36 30 Commercial 35 39 28 33 33 39 27 30 Industrial 21 16 28 27 28 20 35 34 Other* 2 - 2 3 3 - 2 6 100 100 100 100 100 100 100 100 * Rural electric cooperatives, municipalities, street and highway lighting, and others. 7 The GPU Energy companies also make interchange and spot market sales of electricity to other utilities. Reference is made to GPU Energy Companies' Statistics and Company Statistics on pages F-3, F-101, F-111, and F-121, for additional information concerning GPU's sales and revenues. Revenues of JCP&L, Met-Ed and Penelec derived from their largest single customers accounted for less than 3%, 2% and 1%, respectively, of their electric operating revenues for the year and their 25 largest customers, in the aggregate, accounted for approximately 9%, 13% and 14%, respectively, of such revenues. The area served by the GPU Energy companies extends from the Atlantic Ocean to Lake Erie, is generally comprised of small communities, rural and suburban areas and includes a wide diversity of industrial enterprises, as well as substantial farming areas. JCP&L provides retail service in northern, western and east central New Jersey, having an estimated population of approximately 2.5 million. Met-Ed provides retail electric service in all or portions of 14 counties, in the eastern and south central parts of Pennsylvania, having an estimated population of almost one million. Met-Ed also sells electricity at wholesale to four municipalities having an estimated population of over 11,000. Penelec provides retail and wholesale electric service within a territory located in western, northern and south central Pennsylvania extending from the Maryland state line northerly to the New York state line, with a population of about 1.5 million, approximately 24% of which is concentrated in ten cities and twelve boroughs, all with populations over 5,000. Penelec also provides wholesale service to five municipalities in New Jersey, as well as to Allegheny Electric Cooperative, Inc., which serves 13 rural electric cooperatives in Pennsylvania and one in New Jersey. Penelec, as lessee of the property of the Waverly Electric Light & Power Company, also serves a population of about 13,700 in Waverly, New York and vicinity. The GPU Energy companies' transmission facilities are physically interconnected with neighboring nonaffiliated utilities in Pennsylvania, New Jersey, Maryland, New York and Ohio. The interconnection facilities are used for substantial capacity and energy interchange and purchased power transactions, as well as emergency assistance. The GPU Energy companies are members of the PJM Power Pool and the Mid-Atlantic Area Council, an organization providing coordinated review of the planning by utilities in the PJM area. The PJM Power Pool has submitted a comprehensive restructuring proposal, which is pending before the FERC. For additional discussion, see Competitive Environment - Recent Regulatory Actions, Management's Discussion and Analysis. GPU INTERNATIONAL GROUP The GPU International Group has ownership interests in distribution and supply businesses in England and Australia, ten operating cogeneration plants in the U.S. totaling 895 MW (of which the GPU International Group's equity interest represents 261 MW) of capacity, and eleven operating generating facilities located in foreign countries totaling 2,686 MW (of which the GPU International Group's equity interest represents 546 MW) of capacity. It has also made investments in certain advanced technologies related to the electric power industry. 8 The GPU International Group is continuing to investigate investment opportunities in various other domestic and foreign power projects and foreign utility systems and has commitments, both domestically and internationally, in five generating facilities under construction totaling 3,172 MW (of which its equity interest represents 816 MW) of capacity. At December 31, 1996, GPU, Inc.'s aggregate investment in the GPU International Group was $211 million; GPU, Inc. has also guaranteed up to $893 million of GPU International Group obligations. GPU, Inc. has SEC approval to finance investments in foreign utility companies and exempt wholesale generators up to an aggregate amount equal to 50% of GPU's average consolidated retained earnings, or approximately $1 billion. At December 31, 1996, GPU, Inc. had remaining authorization to finance an additional $25 million of such investments. A request to increase this limit to 100% of GPU's average consolidated retained earnings, or to approximately $2 billion at December 31, 1996, is pending before the SEC. Selected financial data for the GPU International Group is as follows: (In Millions) 1996 1995 1994 Total assets $1,075 $380 $130 Liabilities and capital: Common equity $ 232 $209 $118 Long-term debt 752 104 - Notes payable - 2 - Total capitalization 984 315 118 Minority interest 43 41 - Other liabilities 48 24 12 Total liabilities and capital $1,075 $380 $130 Purchase of investments $ 574 $165 $ 74 Net income/(loss) $ 24 $ 9 $ (3) For additional information on the GPU International Group's investments, see GPU International Group Equity Investments, Note 7 to GPU's Consolidated Financial Statements. With the acquisitions of Midlands in 1996 and Solaris Power (Solaris) in 1995, the GPU International Group now has 50% ownership interests in foreign utility companies having total fixed assets of approximately $1.6 billion. These foreign utility companies, which annually provide about 20 billion kilowatt-hours of electricity to 2.2 million customers in England and 240,000 customers in Australia, had operating revenues of $2.5 billion in 1996. The Labour Party in the United Kingdom has proposed a windfall tax on privatized utilities and other companies as part of its election campaign platform. General elections in the United Kingdom are required to be held no later than May 1997. If the Labour Party wins the general election, and the tax is enacted as currently proposed, a charge to Midlands' earnings, which is estimated to range from $110 million to $350 million (GPU's 50% share being $55 million to $175 million), would be recorded in 1997, perhaps as early as the second quarter. Due to the fact that (1) the Labour Party may not win the election; (2) the windfall tax may not be enacted as currently proposed; (3) the amount of the proposed tax may change; and (4) the Labour Party may change 9 its current platform, there is no certainty that this tax, if levied, would be enacted as currently proposed. In 1996, GPU Power, through a wholly-owned subsidiary, purchased the rights to acquire up to a 40% interest in a venture which plans to construct a 300 MW coal generating plant in the Philippines. GPU Power's equity contribution is expected to be approximately $40 million. In 1996, GPU International, through a wholly-owned subsidiary, completed nonrecourse construction financing for its 300 MW Mid-Georgia project. As of December 31, 1996, GPU International had aggregate borrowings outstanding for the construction of this project of $62 million, of which $22 million is guaranteed by GPU, Inc. In 1996, GPU International and Ballard Power Systems of Canada entered into an agreement to develop, manufacture and market stationary fuel cell power plants worldwide. Under the agreement, GPU International will invest approximately $23 million for up to a 19.3% equity interest in the new venture, of which $6 million was invested as of December 31, 1996. Management expects that the GPU International Group will provide a substantial portion of GPU's future earnings growth and intends on making additional investments in its business activities. The timing and amounts of these investments, however, will depend upon the availability of appropriate opportunities and financing capabilities, including receipt of regulatory authorization from the SEC. NUCLEAR FACILITIES The GPU Energy companies have made investments in three major nuclear projects -- Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are operating generation facilities, and Three Mile Island Unit 2 (TMI-2), which was damaged during a 1979 accident. TMI-1 and TMI-2 are jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively. Oyster Creek is owned by JCP&L. At December 31, 1996, the GPU Energy companies' net investment, including nuclear fuel, in TMI-1 was $597 million (JCP&L $154 million; Met-Ed $297 million; Penelec $146 million) and $766 million for Oyster Creek. The GPU Energy companies' net investment in TMI-2 at December 31, 1996 was $90 million (JCP&L $81 million; Met-Ed $1 million; Penelec $8 million). JCP&L is collecting revenues for TMI-2 on a basis which provides for the recovery of its remaining investment in the plant by 2008. Met-Ed and Penelec are collecting revenues for TMI-2 related to their wholesale customers. Costs associated with the operation, maintenance and retirement of nuclear plants have continued to be significant and less predictable than costs associated with other sources of generation, in large part due to changing regulatory requirements, safety standards, availability of nuclear waste disposal facilities and experience gained in the construction and operation of nuclear facilities. The GPU Energy companies may also incur costs and experience reduced output at their nuclear plants because of the prevailing design criteria at the time of construction and the age of the plants' systems and equipment. In addition, for economic or other reasons, operation of these plants for the full term of their operating licenses cannot be assured. Also, not all risks associated with ownership or operation of 10 nuclear facilities may be adequately insured or insurable. Consequently, the recovery of costs associated with nuclear projects, including replacement power, any unamortized investment at the end of each plant's useful life (whether scheduled or premature), the carrying costs of that investment and retirement costs, is not assured. TMI-1 The operating license for TMI-1, a 786 MW pressurized water reactor, expires in 2014. TMI-1 operated at a capacity factor of 102.8% for the year. Its next refueling outage is scheduled to begin in September 1997. Oyster Creek The operating license for the Oyster Creek station, a 619 MW boiling water reactor, expires in 2009. Oyster Creek operated at a 79.8% capacity factor for 1996. Oyster Creek completed a 49-day scheduled refueling outage on October 23, 1996. Subsequently, the station experienced an automatic reactor shutdown. After the cause of the shutdown was identified, Oyster Creek was returned to service on November 7, 1996. The station's next refueling outage is scheduled to begin in September 1998. TMI-2 The 1979 TMI-2 accident resulted in significant damage to, and contamination of, the plant and a release of radioactivity to the environment. A cleanup program was completed in 1990, and after receiving NRC approval, TMI-2 entered into long-term monitored storage in 1993. As a result of the accident and its aftermath, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, have been asserted against GPU, Inc. and the GPU Energy companies. Approximately 2,100 of such claims were filed in the United States District Court for the Middle District of Pennsylvania. Some of the claims also seek recovery for injuries from alleged emissions of radioactivity before and after the accident. At the time of the TMI-2 accident, as provided for in the Price-Anderson Act, the GPU Energy companies had (a) primary financial protection in the form of insurance policies with groups of insurance companies providing an aggregate of $140 million of primary coverage, (b) secondary financial protection in the form of private liability insurance under an industry retrospective rating plan providing for up to an aggregate of $335 million in premium charges under such plan, and (c) an indemnity agreement with the NRC for up to $85 million, bringing their total financial protection up to an aggregate of $560 million. Under the secondary level, the GPU Energy companies are subject to a retrospective premium charge of up to $5 million per reactor, or a total of $15 million (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5 million). In October 1995, the U.S. Court of Appeals for the Third Circuit ruled that the Price-Anderson Act provides coverage under its primary and secondary levels for punitive as well as compensatory damages, but that punitive damages could not be recovered against the Federal Government under the third level of financial protection. In so doing, the Court of Appeals referred to the "finite fund" (the $560 million of financial protection under the Price- 11 Anderson Act) to which plaintiffs must resort to get compensatory as well as punitive damages. The Court of Appeals also ruled that the standard of care owed by the defendants to a plaintiff was determined by the specific level of radiation which was released into the environment, as measured at the site boundary, rather than as measured at the specific site where the plaintiff was located at the time of the accident (as the defendants proposed). The Court of Appeals also held that each plaintiff still must demonstrate exposure to radiation released during the TMI-2 accident and that such exposure had resulted in injuries. In 1996, the U.S. Supreme Court denied petitions filed by GPU, Inc. and the GPU Energy companies to review the Court of Appeals' rulings. In June 1996, the District Court granted a motion for summary judgment filed by GPU, Inc. and the GPU Energy companies, and dismissed all of the 2,100 pending claims. The Court ruled that there was no evidence which created a genuine issue of material fact warranting submission of plaintiffs' claims to a jury. The plaintiffs have appealed the District Court's ruling to the Court of Appeals for the Third Circuit. There can be no assurance as to the outcome of this litigation. Based on the above, GPU, Inc. and the GPU Energy companies believe that any liability to which they might be subject by reason of the TMI-2 accident will not exceed their financial protection under the Price-Anderson Act. NUCLEAR PLANT RETIREMENT COSTS Retirement costs for nuclear plants include decommissioning the radiological portions of the plants and the cost of removal of nonradiological structures and materials. The disposal of spent nuclear fuel is covered separately by contracts with the U.S. Department of Energy (DOE). For further information regarding nuclear fuel disposal costs, see Summary of Significant Accounting Policies - Nuclear Fuel Disposal Fee, Note 1 to GPU's Consolidated Financial Statements. In 1990, the GPU Energy companies submitted a report, in compliance with NRC regulations, setting forth a funding plan (employing the external sinking fund method) for the decommissioning of their nuclear reactors. Under this plan, the GPU Energy companies intend to complete the funding for Oyster Creek and TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2 funding completion date is 2014, consistent with TMI-2's remaining in long-term storage and being decommissioned at the same time as TMI-1. Based on NRC studies, a comparable funding target was developed for TMI-2 which took the accident into account. Under the NRC regulations, the funding targets (in 1996 dollars) are as follows: (Millions) Oyster TMI-1 TMI-2 Creek JCP&L $ 43 $ 67 $221 Met-Ed 85 135 - Penelec 42 68 - Total $170 $270 $221 12 The funding targets, while not considered cost estimates, are reference levels designed to assure that licensees demonstrate adequate financial responsibility for decommissioning. While the NRC regulations address activities related to the removal of the radiological portions of the plants, they do not establish residual radioactivity limits nor do they address costs related to the removal of nonradiological structures and materials. In 1995, a consultant to GPUN performed site-specific studies of the TMI site, including both Units 1 and 2, and of Oyster Creek, that considered various decommissioning methods and estimated the cost of decommissioning the radiological portions and the cost of removal of the nonradiological portions of each plant, using the prompt removal/dismantlement method. GPUN management has reviewed the methodology and assumptions used in these studies, is in agreement with them, and believes the results are reasonable. The retirement cost estimates under the site-specific studies are as follows (in 1996 dollars): (Millions) Oyster GPU TMI-1 TMI-2 Creek Radiological decommissioning $311 $378 $366 Nonradiological cost of removal 77 36* 35 Total $388 $414 $401 * Net of $6.5 million spent as of December 31, 1996. (Millions) Oyster JCP&L TMI-1 TMI-2 Creek Radiological decommissioning $78 $ 95 $366 Nonradiological cost of removal 19 9* 35 Total $97 $104 $401 * Net of $1.6 million spent as of December 31, 1996. (Millions) Met-Ed TMI-1 TMI-2 Radiological decommissioning $155 $189 Nonradiological cost of removal 39 18* Total $194 $207 * Net of $3.3 million spent as of December 31, 1996. (Millions) Penelec TMI-1 TMI-2 Radiological decommissioning $78 $ 94 Nonradiological cost of removal 19 9* Total $97 $103 * Net of $1.6 million spent as of December 31, 1996. 13 The ultimate cost of retiring the GPU Energy companies' nuclear facilities may be different from the cost estimates contained in these site- specific studies. Such costs are subject to (a) the escalation of various cost elements (for reasons including, but not limited to, general inflation), (b) the further development of regulatory requirements governing decommissioning, (c) the technology available at the time of decommissioning, and (d) the availability of nuclear waste disposal facilities. The GPU Energy companies charge to depreciation expense and accrue retirement costs based on amounts being collected from customers. Currently, the GPU Energy companies are collecting retirement costs which are less than the retirement cost estimates in the 1995 site-specific studies, and they do not intend to increase these accruals until increased collections from customers are obtained. Customer collections are contributed to external trust funds. These deposits, including the related earnings, are classified as Nuclear Decommissioning Trusts on the Balance Sheets. Accounting for retirement costs may change based upon the Financial Accounting Standards Board (FASB) Exposure Draft discussed below. The FASB has issued an Exposure Draft titled "Accounting for Certain Liabilities Related to Closure or Removal of Long-Lived Assets," which includes nuclear plant retirement costs. If the Exposure Draft is adopted, Oyster Creek and TMI-1 future retirement costs would have to be recognized as a liability immediately, rather than the current industry practice of accruing these costs in accumulated depreciation over the life of the plants. A regulatory asset for amounts probable of recovery through rates would also be established. Any amounts not probable of recovery through rates would have to be charged to expense. For TMI-2, a liability has already been recognized, based on the 1995 site-specific study (in 1996 dollars) since the plant is no longer operating (see TMI-2 under this section). The effective date of this accounting change could be as early as January 1, 1998. TMI-1 and Oyster Creek: The NJBPU has granted JCP&L annual revenues for TMI-1 and Oyster Creek retirement costs of $2.5 million and $13.5 million, respectively. These annual revenues are based on both the NRC funding targets for radiological decommissioning costs and a site-specific study which was performed in 1988 for nonradiological costs of removal. A Stipulation of Final Settlement pending before the NJBPU would allow for JCP&L's future collection of retirement costs to increase annually to $5.2 million and $22.5 million for TMI-1 and Oyster Creek, respectively, beginning in 1998, based on the 1995 site-specific study estimates (see Rate Matters - Final Settlement, Management's Discussion and Analysis). The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs of $8.5 million based on both the NRC funding target for radiological decommissioning costs and the 1988 site-specific study for nonradiological costs of removal. The PaPUC also granted Penelec annual revenues of $4.2 million for its share of TMI-1 retirement costs, on a basis consistent with that granted Met-Ed. The amounts charged to depreciation expense in 1996 and the provisions for the future expenditure of these funds, which have been made in accumulated depreciation, are as follows: 14 (Millions) Oyster TMI-1 Creek Amount expensed in 1996: JCP&L $ 2 $ 13 Met-Ed 9 - Penelec 4 - Total $ 15 $ 13 Accumulated depreciation provision at December 31, 1996: JCP&L $ 30 $174 Met-Ed 50 - Penelec 21 - Total $101 $174 Management believes that any TMI-1 and Oyster Creek retirement costs, in excess of those currently recognized for ratemaking purposes, should be recoverable under the current ratemaking process. TMI-2: The estimated liability for TMI-2 future retirement costs (reflected as Three Mile Island Unit 2 Future Costs on the Balance Sheet) as of December 31, 1996 is $431 million (JCP&L $108 million; Met-Ed $215 million; Penelec $108 million). The liability is based upon the 1995 site-specific study estimates (in 1996 dollars) discussed above and an estimate for remaining incremental monitored storage costs of $17 million (JCP&L $4 million; Met-Ed $8 million; Penelec $5 million), as a result of TMI-2's entering long-term monitored storage in 1993. The GPU Energy companies are incurring annual incremental monitored storage costs of approximately $1 million (JCP&L $250 thousand; Met- Ed $500 thousand; Penelec $250 thousand). Offsetting the $431 million liability at December 31, 1996 is $266 million (JCP&L $45 million; Met-Ed $143 million; Penelec $78 million), which is probable of recovery from customers and included in Three Mile Island Unit 2 Deferred Costs on the Consolidated Balance Sheet, and $181 million (JCP&L $72 million; Met-Ed $78 million; Penelec $31 million) in trust funds for TMI-2 and included in Nuclear Decommissioning Trusts on the Consolidated Balance Sheet. Earnings on trust fund deposits are included in amounts shown on the Consolidated Balance Sheet under Three Mile Island Unit 2 Deferred Costs. TMI-2 decommissioning costs charged to depreciation expense in 1996 amounted to $14 million (JCP&L $3 million; Met-Ed $10 million; Penelec $1 million). The NJBPU and PaPUC have granted JCP&L and Met-Ed, respectively, TMI-2 decommissioning revenues for the NRC funding target and allowances for the cost of removal of nonradiological structures and materials. In addition, JCP&L is recovering its share of TMI-2's incremental monitored storage costs. The Final Settlement pending before the NJBPU would adjust JCP&L's future revenues for retirement costs based on the 1995 site-specific study estimates, beginning in 1998. Based on Met-Ed's rate order, Penelec has recorded a regulatory asset for that portion of such costs which it believes to be probable of recovery. 15 At December 31, 1996, the accident-related portion of TMI-2 radiological decommissioning costs is considered to be $67 million (JCP&L $17 million; Met- Ed $34 million; Penelec $16 million), which is the difference between the 1995 TMI-1 and TMI-2 site-specific study estimates (in 1996 dollars). In connection with rate case resolutions at the time, JCP&L, Met-Ed and Penelec made contributions to irrevocable external trusts relating to their shares of the accident-related portions of the decommissioning liability. In 1990, JCP&L contributed $15 million and in 1991, Met-Ed and Penelec contributed $40 million and $20 million, respectively, to irrevocable external trusts. These contributions were not recovered from customers and have been expensed. The GPU Energy companies will not pursue recovery from customers for any of these amounts contributed in excess of the $67 million accident-related portion referred to above. JCP&L intends to seek recovery for any increases in TMI-2 retirement costs, and Met-Ed and Penelec intend to seek recovery for any increases in the nonaccident-related portion of such costs, but recognize that recovery cannot be assured. INSURANCE GPU has insurance (subject to retentions and deductibles) for its operations and facilities including coverage for property damage, liability to employees and third parties, and loss of use and occupancy (primarily incremental replacement power costs). There is no assurance that GPU will maintain all existing insurance coverages. Losses or liabilities that are not completely insured, unless allowed to be recovered through ratemaking, could have a material adverse effect on the financial position of GPU. The decontamination liability, premature decommissioning and property damage insurance coverage for the TMI station and for Oyster Creek total $2.7 billion per site. In accordance with NRC regulations, these insurance policies generally require that proceeds first be used for stabilization of the reactors and then to pay for decontamination and debris removal expenses. Any remaining amounts available under the policies may then be used for repair and restoration costs and decommissioning costs. Consequently, there can be no assurance that in the event of a nuclear incident, property damage insurance proceeds would be available for the repair and restoration of that station or to retire capital investment. The Price-Anderson Act limits GPU's liability to third parties for a nuclear incident at one of its sites to approximately $8.9 billion. Coverage for the first $200 million of such liability is provided by private insurance. The remaining coverage, or secondary financial protection, is provided by retrospective premiums payable by all nuclear reactor owners. Under secondary financial protection, a nuclear incident at any licensed nuclear power reactor in the country, including those owned by the GPU Energy companies, could result in assessments of up to $79 million per incident for each of the GPU Energy companies' two operating reactors, subject to an annual maximum payment of $10 million per incident per reactor. In addition to the retrospective premiums payable under Price-Anderson, the GPU Energy companies are also subject to retrospective premium assessments of up to $54 million (JCP&L $32 million; Met-Ed $15 million; Penelec $7 million) in any one year under insurance policies applicable to nuclear operations and facilities. 16 The GPU Energy companies have insurance coverage for incremental replacement power costs resulting from an accident-related outage at their nuclear plants. Coverage commences after the first 21 weeks of the outage and continues for three years beginning at $1.8 million for Oyster Creek and $2.6 million for TMI-1 per week for the first year, decreasing to 80% of such amounts for years two and three. NONUTILITY AND OTHER POWER PURCHASES Pursuant to the requirements of PURPA and state regulatory directives, the GPU Energy companies have entered into power purchase agreements with NUGs for the purchase of energy and capacity for periods of up to 26 years (JCP&L 25 years; Met-Ed 26 years; Penelec 25 years). The following table shows actual payments from 1994 through 1996, and estimated payments from 1997 through 2001. Payments Under NUG Agreements (in Millions) Total JCP&L Met-Ed Penelec * 1994 $528 $304 $101 $123 * 1995 670 381 131 158 * 1996 739 370 177 192 1997 672 336 146 190 1998 691 340 152 199 1999 706 344 152 210 2000 804 347 196 261 2001 873 353 225 295 * Actual. The 1996 amounts are reflected in the rates currently being charged by the GPU Energy companies. While a few of these facilities are dispatchable, most are must-run and generally obligate the GPU Energy companies to purchase, at the contract price, the output up to the contract limits. As of December 31, 1996, facilities covered by these agreements having 1,631 MW (JCP&L 891 MW; Met-Ed 340 MW; Penelec 400 MW) of capacity were in service. The emerging competitive generation market has created uncertainty regarding the forecasting of the GPU Energy companies' energy supply needs, which has caused the companies to change their supply strategy to seek shorter-term agreements offering more flexibility. The cost of near- to intermediate-term (i.e. one to four years) energy supply from generation facilities now in service is currently and is expected to continue to be priced below the costs of new supply sources, at least for some time. The projected cost of energy from new generation supply sources has also decreased due to improvements in power plant technologies and lower forecasted fuel prices. As a result of these developments, the rates under virtually all of the GPU Energy companies' NUG agreements for facilities currently in operation are substantially in excess of current and projected prices from alternative sources. The GPU Energy companies are seeking to reduce the above market costs of these NUG agreements by: (1) attempting to convert must-run agreements to 17 dispatchable agreements; (2) attempting to renegotiate prices of the agreements; (3) offering contract buyouts (see The GPU Energy Companies' Supply Plan - Managing Nonutility Generation, Management's Discussion and Analysis); and (4) initiating proceedings before federal and state agencies, and in the courts, where appropriate. In addition, the GPU Energy companies intend to avoid, to the maximum extent practicable, entering into any new NUG agreements that are not needed or not consistent with current market pricing, and are supporting legislative efforts to repeal PURPA. These efforts have resulted and may result in additional claims against GPU for substantial damages. There can be no assurance as to the extent these efforts will be successful in whole or in part. Recent NUG actions are as follows: JCP&L entered into an agreement with the developer of the proposed 110 MW Freehold gas-fired cogeneration project that terminates JCP&L's long-term contract to purchase power from the project. Met-Ed and Penelec entered into restructured power purchase agreements with AES Power Corporation (AES) relating to the proposed Altoona (80 MW), Blue Mountain (150 MW) and York County (227 MW) NUG facilities. AES, which purchased the interests of the original developers, plans to construct a single, fully dispatchable, gas-fired combined-cycle facility in Southeastern Pennsylvania. These restructured power purchase agreements, which have initial eight-year terms, require PaPUC approval. Penelec entered into a restructured power purchase agreement with the developer of a proposed 80 MW coal-fired cogeneration facility that was to be built in western Pennsylvania. The restructured power purchase agreement provides for a fully dispatchable, gas-fired combined-cycle cogeneration facility to be built. The new power purchase agreement has an initial eight- year term, with options for extension, and is subject to PaPUC approval. From 1997 through 2002, JCP&L has contracts to purchase between 5,100 GWH and 5,200 GWH of electric generation per year at prices which are estimated to escalate approximately 1.2% annually on a unit cost (cents/KWH) basis during this period. From 2003 through 2008, JCP&L has contracts to purchase between 4,700 GWH and 5,100 GWH of electric generation per year at an average annual cost of $369 million. The prices during this period are estimated to escalate approximately 1.5% annually. After 2008, when major contracts begin to expire, purchases steadily decline to approximately 865 GWH in 2014. The contract unit cost is estimated to escalate approximately 4.0% annually from 2009 through 2014, with a total average annual cost of $193 million during this period. All of JCP&L's contracts will have expired by the end of 2017. During this entire period, the NUG fuel mix averages approximately 95% natural gas. From 1997 through 1999, Met-Ed has contracts to purchase between 2,000 GWH and 2,100 GWH of electric generation per year at prices which are estimated to escalate approximately 0.6% annually on a unit cost basis during this period. From 2000 through 2008, Met-Ed has contracts to purchase between 2,900 GWH and 4,300 GWH of electric generation per year at an average annual cost of $241 million. The prices during this period are estimated to escalate approximately 2.5% annually on a unit cost basis. From 2009 through 2012, Met-Ed is forecast to purchase between 1,500 GWH and 1,900 GWH of electric generation per year at an average annual cost of $169 million. During this period, the prices are estimated to escalate approximately 3.4% annually on a unit cost basis. After 2012, Met-Ed's remaining contracts expire rapidly 18 through 2015; thereafter, they remain constant until the expiration of the last contract in 2020. During this entire period, the NUG fuel mix averages approximately 50% to 75% coal/waste coal. From 1997 through 2000, Penelec has contracts to purchase between 3,000 GWH and 4,000 GWH of electric generation per year at prices which are estimated to escalate approximately 1.4% annually on a unit cost basis during this period. From 2001 through 2008, Penelec has contracts to purchase between 3,900 GWH and 5,000 GWH of electric generation per year at an average annual cost of $297 million. The prices during this period are estimated to escalate approximately 1.5% annually on a unit cost basis. From 2009 through 2017, purchases decline from approximately 3,000 GWH to approximately 1,500 GWH in 2017. The contract unit cost is estimated to escalate approximately 3.4% annually from 2009 through 2017, with a total average annual cost of $211 million during this period. After 2017, Penelec's remaining contracts expire rapidly through 2020. During this entire period, the NUG fuel mix averages approximately 65% to 95% coal/waste coal. This discussion contains estimates which are based on current knowledge and expectations of the outcome of future events. The estimates are subject to significant uncertainties, including changes in fuel prices, improvements in technology, the changing regulatory environment and the deregulation of the electric utility industry. The GPU Energy companies have been granted recovery of their NUG costs (including certain buyout costs) from customers by the PaPUC and NJBPU and expect to continue to pursue such recovery. Although the recently enacted legislation in Pennsylvania and the NJEMP in New Jersey both include provisions for the recovery of costs under NUG agreements and certain NUG buyout costs, there can be no assurance that the GPU Energy companies will continue to be able to recover similar costs which may be incurred in the future (see Competitive Environment, Management's Discussion and Analysis). JCP&L has entered into agreements with other utilities to purchase capacity and energy for various periods through 2004. These agreements will provide for up to 745 MW in 1997, declining to 527 MW in 1999 and 345 MW in 2004. Payments pursuant to these agreements are estimated to be $145 million in 1997, $128 million in 1998, $104 million in 1999, $84 million in 2000, and $99 million in 2001. In January 1996, JCP&L issued an all-supply source solicitation for the supply of energy and capacity to meet its forecasted needs. In October 1996, four potential suppliers were selected to provide capacity for four years, beginning in June 1999. Contract negotiations are currently in progress to provide for firm and optional purchases of capacity and energy from sources in New Jersey, Pennsylvania and New York. RATE PROCEEDINGS Pennsylvania Pennsylvania adopted comprehensive legislation in 1996 which provides for the restructuring of the electric utility industry (see Recent Developments section). Effective January 1, 1997, transmission and distribution rates charged to Pennsylvania retail customers are generally capped for 4 1/2 years, 19 and generation rates are generally capped for up to nine years. Met-Ed and Penelec filed, in December 1996, tariff supplements with the PaPUC requesting approval to, among other things, include their currently effective ECR and STAS in base rates, effective for all bills rendered after January 1, 1997. On February 28, 1997, the PaPUC issued a final order approving this request. Since rates that can be charged to customers for generation are capped for up to nine years, Met-Ed's and Penelec's future earnings will be subject to market volatility. Increases or decreases in fuel costs will no longer be subject to deferred accounting and will be reflected in net income as incurred. Met-Ed and Penelec will continue their efforts to manage fuel costs and will mitigate, to the extent possible, any excessive risks. As a result of including their ECRs in base rates and the cessation of deferred energy accounting, both effective January 1, 1997, Met-Ed and Penelec will experience step increases in reported revenues totaling approximately $25 million in the first quarter of 1997. New Jersey In 1996, the NJBPU approved a provisional settlement for a combined levelized energy adjustment clause (LEAC) and Demand-Side Factor (DSF) increase of $27.9 million annually. Also in 1996, JCP&L, the staff of the NJBPU and the Division of Ratepayer Advocate reached an agreement on a variety of pending rate-related issues (Final Settlement). An Administrative Law Judge (ALJ) issued a decision recommending approval of the Final Settlement, but the NJBPU ordered additional evidentiary hearings on the recovery of buyout costs for the Freehold cogeneration project discussed below (see The GPU Energy Companies' Supply Plan - Managing Nonutility Generation, Management's Discussion and Analysis). In December 1996, the ALJ issued a further decision recommending that recovery of the Freehold buyout costs be approved, subject to possible revocation or modification, if it is determined that the project was not viable when it was bought out. On December 31, 1996, an Addendum revising the Final Settlement was agreed upon by JCP&L, the staff of the NJBPU and the Division of Ratepayer Advocate. In January 1997, the NJBPU staff recommended that rate recovery of the Freehold buyout costs be permitted. JCP&L expects the NJBPU to issue an order in the first quarter of 1997 approving the Final Settlement as revised. There can be no assurance as to the outcome of this proceeding. Provisions of the Final Settlement, as revised by the Addendum, include a further annual increase of $7 million in the LEAC in addition to those noted above and an annual reduction of $11 million in base rates. Base rates would be frozen at that level until the year 2000, and the LEAC rate frozen through the year 1999. JCP&L could seek a LEAC rate increase if the deferred LEAC balance is projected to exceed $40 million, or a base rate increase under certain other conditions, such as a major change in the current regulatory environment. The Final Settlement provides for recovery in base rates, beginning in 1998, of all postretirement benefit costs recorded in accordance with Statement of Financial Accounting Standards No. 106 including amounts previously deferred and an increase in decommissioning expense to reflect the radiological decommissioning and nonradiological removal costs estimated in the 1995 site-specific studies performed for GPUN. Also, included in base rates would be recovery of the remaining investments in the 58 MW Werner Unit 4 and 72 MW Gilbert Unit 3 generating plants, which were retired in 1996. 20 The Final Settlement also provides for recovery through the LEAC of: (1) buyout costs up to $130 million, and 50% of any costs from $130 million to $140 million, over a seven-year period for the termination of the Freehold power purchase agreement; and (2) $14 million of the $17 million buyout costs, over a two year period, for the termination of the agreement to purchase power from the proposed 200 MW Crown/Vista project. JCP&L wrote-off the remaining $3 million of buyout costs for the Crown/Vista project in the second quarter of 1996. In addition, the Final Settlement resolves the NJBPU's generic proceeding regarding recovery of capacity costs associated with electric power purchases from NUG projects which the Division of the Ratepayer Advocate claimed to result in a double recovery. JCP&L would not have to refund any amounts previously collected. The Final Settlement provides annual allowances for the recovery of forecasted additions to nuclear plant. The Final Settlement also provides that if JCP&L's return on equity exceeds 12.2%, excluding demand-side management and nuclear performance incentives, the excess would be used to reduce both customer rates and certain regulatory assets. JCP&L's two operating nuclear units are subject to the NJBPU's annual nuclear performance standard. Operation of these units at an aggregate annual generating capacity factor below 65% or above 75% would trigger a charge or credit based on replacement energy costs. At current cost levels, the maximum annual effect of the performance standard charge at a 40% capacity factor would be approximately $10 million before tax. While a capacity factor below 40% would generate no specific monetary charge, it would require the issue to be brought before the NJBPU for review. The annual measurement period, which begins in March of each year, coincides with that used for the LEAC. CAPITAL PROGRAMS General During 1996, construction expenditures for the GPU Energy companies totaled approximately $404 million (JCP&L $200 million; Met-Ed $77 million; Penelec $115 million; Other $12 million) attributable principally to new customer connections and maintenance and improvement of existing transmission and distribution facilities. In addition, the GPU International Group made investments in 1996 totaling $574 million, primarily to acquire Midlands (see GPU International Group section). Expenditures for maturing obligations totaled $131 million (JCP&L $35 million; Met-Ed $15 million; Penelec $75 million; Other $6 million) in 1996. The GPU Energy companies' principal categories of estimated construction expenditures for 1997 are as follows: (In Millions) 1997 Total JCP&L Met-Ed Penelec Other Generation - Nuclear $ 35 $ 16 $13 $ 6 $ - Non-nuclear 45 10 8 27 - Total Generation 80 26 21 33 - Transmission & Distribution 275 141 59 75 - Other 47 18 10 12 7 Total $402 $185 $90 $120 $ 7 21 These construction expenditures are expected to be incurred primarily for ongoing system development. Construction expenditures for the GPU Energy companies are estimated to be $391 million in 1998 (JCP&L $168 million; Met-Ed $98 million; Penelec $118 million; Other $7 million). Expenditures for maturing obligations will total $179 million for 1997 (JCP&L $110 million; Met-Ed $40 million; Penelec $26 million; Other $3 million) and $139 million for 1998 (JCP&L $12 million; Penelec $30 million; Other $97 million). In addition, during 1997 and 1998, and subject to the receipt of regulatory approval, GPU, Inc. will make capital contributions and provide credit support (in amounts which may be substantial) to the GPU International Group as investment opportunities arise. GPU and the GPU Energy companies estimate that a substantial portion of their anticipated total capital needs in 1997 and 1998 will be satisfied through internally generated funds. The GPU Energy companies expect to finance the remainder of their capital needs principally through the issuance of long-term debt, subject to market conditions. In addition, further significant investments by the GPU International Group, or otherwise, may require GPU, Inc. to issue additional debt and/or common stock. The GPU Energy companies' bond indentures and articles of incorporation include provisions that limit the amount of long-term debt, preferred stock and short-term debt the companies may issue (see Limitations on Issuing Additional Securities section). The GPU Energy companies' 1996 construction expenditures exclude nuclear fuel additions provided under capital leases that amounted to $35 million (JCP&L $33 million; Met-Ed $1 million; Penelec $1 million). When consumed, the presently leased material, which amounted to $139 million (JCP&L $95 million; Met-Ed $29 million; Penelec $15 million) at December 31, 1996, is expected to be replaced by additional leased material at an average annual rate (which is based on two full operating cycles, or four years) of between $35 million and $50 million (JCP&L $20 million - $25 million; Met-Ed $10 million - $15 million; Penelec $5 million - $10 million). In the event the needed nuclear fuel cannot be leased, the associated capital requirements would have to be met by other means. In light of retail access legislation enacted in Pennsylvania and proposed in New Jersey, the extent to which competition will affect the GPU Energy companies' supply plan remains uncertain. Over the next five years, the GPU Energy companies' existing franchise service territories are expected to experience an average annual growth in sales of about 1.7% (JCP&L 1.7%; Met-Ed 1.9%; Penelec 1.7%), principally due to continued economic growth and a slight increase in the number of customers. The GPU Energy companies intend to provide for these increased energy needs, if necessary, through a mix of economic supply sources and will continue to evaluate additional economic purchase opportunities as both demand and supply market conditions evolve. In response to this competitive climate in which it is likely a major portion of the GPU Energy companies' existing customer base will be able to choose their electric generation supplier, and the surplus capacity position of nearby utilities, the GPU Energy companies' supply plan focuses increasingly on short- to intermediate-term commitments, reliance on "spot" market purchases, and avoidance of long-term firm commitments. The GPU Energy 22 companies' present strategy includes minimizing the financial exposure associated with new long-term purchase commitments and the construction of new facilities by evaluating these options in terms of an unregulated power market. As part of this strategy, the GPU Energy companies are continually evaluating the future financial viability of their nuclear and fossil generation assets and will retire or otherwise dispose of plants that become uneconomical. The GPU Energy companies intend to take necessary actions to avoid adding new capacity which would result in costs that may exceed future market prices. In addition, the GPU Energy companies intend to continue to seek regulatory support to renegotiate or buy out contracts with NUGs where the pricing is in excess of projected market prices. FINANCING ARRANGEMENTS GPU, Inc. has received SEC approval to issue and sell up to $300 million of unsecured debentures through December 31, 2001 and up to seven million shares of additional common stock through 1998. GPU, Inc. has no current plans to issue these securities. Any sale of such securities will, among other things, depend upon future capital requirements and market conditions. GPU has $527 million of credit facilities, including two Revolving Credit Agreements, as discussed below. Under a Credit Agreement between GPU, Inc., the GPU Energy companies and a consortium of banks, total borrowings are limited to $250 million outstanding at any time and are subject to various covenants and acceleration under certain circumstances. The agreement expires May 6, 2001, and a commitment fee on the unborrowed amount of 1/8 of 1% is payable annually. Borrowing rates and a facility fee are based on the long-term debt ratings of the GPU Energy companies. GPU International, Inc. has a separate Credit Agreement providing for borrowings (guaranteed by GPU, Inc.) through December 1997 of up to $30 million outstanding at any time, which amount decreases for two years thereafter. Up to $15 million may be borrowed in the form of letters of credit. An annual commitment fee of 3/8 of 1% on unborrowed amounts and a letter of credit fee of 1/2 of 1% are payable by GPU International, Inc. GPU expects to have short-term debt outstanding from time to time throughout 1997. The peak in short-term debt outstanding typically occurs in the spring, coinciding with normal cash requirements for state revenue tax payments. As a result of the Pennsylvania restructuring legislation (see Competitive Environment, Management's Discussion and Analysis), Met-Ed and Penelec each plan to sell transition bonds through a separate trust or other similar entity, with maturities of up to 10 years. Met-Ed and Penelec would use the proceeds from such sale to reduce capitalization and further mitigate stranded costs resulting from customer choice. The timing and amount of the sale of transition bonds will depend upon PaPUC approval of restructuring plans, as well as market conditions. The GPU Energy companies have regulatory authority to issue and sell first mortgage bonds (FMBs), including secured medium-term notes, and preferred stock through various periods into 1997. The GPU Energy companies 23 intend to seek regulatory approval to extend such authorizations through June 1999 for both JCP&L and Penelec, and through December 1999 for Met-Ed. Under existing authorizations, JCP&L, Met-Ed and Penelec may issue these senior securities in aggregate amounts of $145 million, $190 million and $120 million, respectively, of which up to $100 million for each company may consist of preferred stock. The GPU Energy companies also have regulatory authority to incur short-term debt, a portion of which may be through the issuance of commercial paper. In 1996, the GPU Energy companies issued an aggregate of $120 million (JCP&L $80 million; Penelec $40 million) principal amount of FMBs. The proceeds were used to repay short-term debt and for other corporate purposes. The GPU Energy companies redeemed $115.7 million (JCP&L $25.7 million; Met-Ed $15 million; Penelec $75 million) principal amount of FMBs with 1996 maturities. Also in 1996, JCP&L redeemed $20 million stated value of cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. In December 1996, Met-Ed and Penelec repurchased an aggregate of $11.4 million stated value and $20 million stated value, respectively, of cumulative preferred stock through cash tender offers, at a total cost of approximately $7.7 million and $14.4 million, respectively. In January 1997, JCP&L redeemed an aggregate of $54.2 million principal amount of FMBs, of which $24.2 million were redeemed prior to maturity. Present plans call for the GPU Energy companies to issue long-term debt during the next three years to finance construction activities, fund the redemption of maturing senior securities, and depending on interest rates, refinance outstanding senior securities. In addition, subject to the receipt of further regulatory authorization, further significant investments by the GPU International Group, or otherwise, may require GPU, Inc. to issue additional debt and/or common stock (see GPU International Group section). In 1996, GPU Electric, through its wholly-owned subsidiary EI UK, entered into a five-year term loan agreement with a syndicate of banks which provides for borrowings of up to 350 million pounds, which are guaranteed by GPU, Inc. As of December 31, 1996, EI UK had aggregate borrowings outstanding under this facility of 342 million pounds, or approximately U.S. $586 million. The proceeds from these borrowings were used by EI UK to fund its equity investment in Midlands. Also in 1996, GPU International, through a wholly-owned subsidiary, completed nonrecourse construction financing for its 300 MW Mid-Georgia project. As of December 31, 1996, aggregate borrowings outstanding for the construction of this project amounted to $62 million, of which $22 million has been guaranteed by GPU, Inc. LIMITATIONS ON ISSUING ADDITIONAL SECURITIES The GPU Energy companies' FMB indentures and/or charters contain provisions which limit the total amount of securities evidencing secured indebtedness and/or unsecured indebtedness which the GPU Energy companies may issue, the more restrictive of which are discussed below. 24 The GPU Energy companies' FMB indentures require that, for a period of any twelve consecutive months out of the fifteen calendar months immediately preceding the issuance of additional FMBs, net earnings (before income taxes, with other income limited to 5% of operating income before income taxes for JCP&L and Met-Ed and 10% for Penelec) available for interest on FMBs shall have been at least twice the annual interest requirements on all FMBs to be outstanding immediately after such issuance. Moreover, the GPU Energy companies' FMB indentures restrict the ratio of the principal amount of FMBs which may be issued to not more than 60% of available bondable value of property additions. In addition, the indentures, in general, permit the GPU Energy companies to issue additional FMBs against a like principal amount of previously issued and retired FMBs. At December 31, 1996, the net earnings requirement under the GPU Energy companies' FMB indentures, as described above, would have permitted JCP&L, Met-Ed and Penelec to issue $1.1 billion, $606 million and $556 million, respectively, principal amount of additional FMBs at an assumed 8% interest rate. However, the GPU Energy companies had bondable value of property additions sufficient to permit JCP&L, Met-Ed and Penelec to issue only approximately $361 million, $377 million and $257 million, respectively, principal amount of additional FMBs. In addition, the GPU Energy companies' FMB indentures would have permitted JCP&L, Met-Ed and Penelec to issue approximately $261 million, $60 million and $142 million, respectively, of FMBs against retired FMBs. Among other restrictions, the GPU Energy companies' charters provide that without the consent of the holders of two-thirds of the outstanding preferred stock, no additional shares of preferred stock may be issued unless, for a period of any twelve consecutive months out of the fifteen calendar months immediately preceding such issuance, the after-tax net earnings available for the payment of interest on indebtedness shall have been at least one and one- half times the aggregate of (a) the annual interest charges on indebtedness and (b) the annual dividend requirements on all shares of preferred stock to be outstanding immediately after such issuance. At December 31, 1996, these provisions would have permitted JCP&L, Met-Ed and Penelec to issue $852 million, $419 million and $391 million, respectively, stated value of cumulative preferred stock at an assumed 7.5% dividend rate. The GPU Energy companies' charters also provide that, without the consent of the holders of a majority of the total voting power of the GPU Energy companies' outstanding preferred stock, the GPU Energy companies may not issue or assume any securities representing short-term unsecured indebtedness, except to refund certain outstanding unsecured securities issued or assumed by the GPU Energy companies or to redeem all outstanding preferred stock, if immediately thereafter the total principal amount of all outstanding unsecured debt securities having an initial maturity of less than ten years (or within three years of maturity for all unsecured indebtedness having original maturities in excess of 10 years) would exceed 10% of the aggregate of (a) the total principal amount of all outstanding secured indebtedness issued or assumed by the GPU Energy companies and (b) the capital and surplus of the GPU Energy companies. At December 31, 1996, these restrictions would have permitted JCP&L, Met-Ed and Penelec to have approximately $292 million, $130 million and $145 million, respectively, of unsecured indebtedness outstanding. 25 The GPU Energy companies have obtained authorization from the SEC to incur short-term debt (including indebtedness under the Credit Agreement and commercial paper) up to the GPU Energy companies' charter limitations. REGULATION As a registered holding company, GPU, Inc. is subject to regulation by the SEC under the 1935 Act. GPU is also subject to regulation under the 1935 Act with respect to accounting, the issuance of securities, the acquisition and sale of utility assets, securities or any other interest in any business, the entering into, and performance of, service, sales and construction contracts, and certain other matters. The SEC has determined that the electric facilities of the GPU Energy companies constitute a single integrated public utility system under the standards of the 1935 Act. The 1935 Act also limits the extent to which GPU may engage in nonutility businesses (see Other Developments and GPU Initiatives section). Each of the GPU Energy companies' retail rates, conditions of service, issuance of securities and other matters are subject to regulation in the state in which each operates - in New Jersey by the NJBPU and in Pennsylvania by the PaPUC. Additionally, Penelec, as lessee, operates the facilities serving the village of Waverly, New York. Penelec's retail rates for New York customers, as well as Penelec's New York operations and property, are subject to regulation by the New York Public Service Commission. Although Penelec does not render electric service in Maryland, the Public Service Commission of Maryland has jurisdiction over the portion of Penelec's property located in that state. Moreover, with respect to wholesale rates, the transmission of electric energy, accounting, the construction and maintenance of hydroelectric projects and certain other matters, the GPU Energy companies are subject to regulation by the FERC under the Federal Power Act. The NRC regulates the construction, ownership and operation of nuclear generating stations and other related matters. JCP&L is also subject, in certain respects, to regulation by the PaPUC in connection with its participation in the ownership and operation of certain facilities located in Pennsylvania. See Electric Generation and the Environment - Environmental Matters section, for additional information. Midlands, the GPU International Group's electric distribution subsidiary in England, is subject to regulation by the Office of Electricity Regulation. Midlands' network charges are subject to regulatory review every five years, with the results of the next review scheduled for release on April 1, 2000. The supply business franchise license currently relates only to customers having an annual maximum demand of less than 100 KW. Customers with a higher maximum demand are able to buy their electricity from any electricity supplier. This option will be extended to cover all customers effective April 1, 1998. Solaris, the GPU International Group's electric distribution subsidiary in Australia, is subject to regulation by the Office of the Regulator General. Solaris' network and connection charges are subject to regulatory review every five years, with the next review scheduled for January 1, 2000. In addition, Solaris' franchise license becomes nonexclusive in stages through the year 2001, at which time all customers will be permitted to choose their source of electric supply. Empresa Guaracachi S.A., the GPU International Group's electric generation subsidiary in Bolivia, is subject to regulation under the 26 Electricity Law of 1994. Twice each year, the Superintendency of Electricity recalculates the prices that Empresa Guaracachi S.A. and other electric generators may charge for capacity based upon an estimated cost of constructing a new generating unit. In addition, energy prices are recalculated semi-annually based upon a projected cost of generation, including fuel and nonfuel variable operation and maintenance costs. ELECTRIC GENERATION AND THE ENVIRONMENT Fuel The GPU Energy companies utilized fuels in the generation of electric energy during 1996 in approximately the following percentages: 1996 Actuals Total JCP&L Met-Ed Penelec Coal 60% 24% 56% 86% Nuclear 38% 70% 42% 13% Gas 1% 4% - - Oil 1% 4% 1% - Other* - (2)% 1% 1% * Represents hydro and pumped storage (which is a net user of electricity). Approximately 40% (JCP&L 58%; Met-Ed 34%; Penelec 29%) of the GPU Energy companies' total energy requirements in 1996 was supplied by purchases and interchange from other utilities and NUGs. For 1997, the GPU Energy companies estimate that their use of fuels in the generation of electric energy will be in the following percentages: 1997 Estimates Total JCP&L Met-Ed Penelec Coal 64% 24% 63% 90% Nuclear 33% 71% 33% 10% Gas 3% 10% 2% - Oil - - - - Other* - (5)% 2% - * Represents hydro and pumped storage. Approximately 40% (JCP&L 59%; Met-Ed 37%; Penelec 26%) of the GPU Energy companies' 1997 energy requirements are expected to be supplied by purchases and interchange from other utilities and NUGs. Fossil: The GPU Energy companies have entered into long-term contracts with nonaffiliated mining companies for the purchase of coal for certain generating stations in which they have ownership interests (JCP&L - 16.67% ownership interest in Keystone; Met-Ed - 16.45% ownership interest in Conemaugh; and Penelec - 50% ownership interest in Homer City). The contracts, which expire between 1997 and 2004, require the purchase of either fixed or minimum amounts of coal. The price of the coal under the contracts is based on adjustments of indexed cost components. One of Penelec's contracts for Homer City also includes a provision for the payment of postretirement benefits costs. The GPU Energy companies' share of the cost of coal purchased under these agreements is expected to aggregate $133 million (JCP&L $23 million; Met-Ed $29 million; Penelec $81 million) for 1997. The GPU Energy companies' coal-fired generating stations now in service are estimated to require an aggregate of 155 million tons (JCP&L 15 million 27 tons; Met-Ed 41 million tons; Penelec 99 million tons) of coal over the next twenty years. Of this total requirement, approximately 8 million tons (JCP&L 3 million tons; Penelec 5 million tons) are expected to be supplied by nonaffiliated mine-mouth coal companies with the balance supplied through short- and long-term contracts and spot market purchases. At the present time, adequate supplies of fossil fuels are readily available to the GPU Energy companies, but this situation could change rapidly as a result of actions over which they have no control. 28 Nuclear: The preparation of nuclear fuel for generating station use involves various manufacturing stages for which GPU contracts separately. Stage I involves the mining and milling of uranium ores to produce natural uranium concentrates. Stage II provides for the chemical conversion of the natural uranium concentrates into uranium hexafluoride. Stage III involves the process of enrichment to produce enriched uranium hexafluoride from the natural uranium hexafluoride. Stage IV provides for the fabrication of the enriched uranium hexafluoride into nuclear fuel assemblies for use in the reactor core at the nuclear generating station. In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), the GPU Energy companies have entered into contracts with, and have been paying fees to, the DOE for the future disposal of spent nuclear fuel in a repository or interim storage facility. In December 1996, the DOE notified the GPU Energy companies and other standard contract holders that it will be unable to begin acceptance of spent nuclear fuel for disposal by 1998, as mandated by the NWPA. The DOE has requested recommendations for handling the delay. In January 1997, the GPU Energy companies, along with other electric utilities and state agencies, petitioned the U.S. Court of Appeals to, among other things, permit utilities to cease payments into the Federal Nuclear Waste Fund until the DOE complies with the NWPA. The DOE's inability to accept spent nuclear fuel by 1998 could have a material impact on GPU's results of operations, as additional costs may be incurred to build and maintain interim on-site storage at Oyster Creek. For TMI-1, under normal operating conditions, there is, with minor planned modifications, sufficient on-site storage capacity to accommodate spent nuclear fuel through the end of its licensed life, while maintaining the ability to remove the entire reactor core. At Oyster Creek, GPUN completed the construction of an interim spent fuel dry storage facility in 1996. Currently, however, the dry storage facility at Oyster Creek is not operational. The NRC has recently raised certain quality assurance concerns regarding the vendor's quality assurance program and the manufacture of the storage components under this quality assurance program. Based on these concerns, the NRC issued a "Demand for Information" letter to the vendor in late January 1997. This letter requires the vendor to review and evaluate its program and provide a detailed response within 60 days. In addition, GPUN had planned to use Oyster Creek's existing overhead reactor building crane to remove fuel from the spent fuel pool to the interim storage facility. The NRC has raised a safety concern regarding the use of this crane while the plant is operating, and has requested GPUN to request a license amendment addressing its use. GPUN is currently reviewing the available options for moving spent fuel to the dry storage facility. If these issues are resolved and the interim spent fuel dry storage facility becomes operational, Oyster Creek would have sufficient on-site storage capacity to accommodate, under normal operating conditions, its spent nuclear fuel through the end of its current licensed life, while maintaining the ability to remove the entire reactor core. Environmental Matters GPU is subject to a broad range of federal, state and local environmental and employee health and safety legislation and regulations. In addition, the GPU Energy companies are subject to licensing of hydroelectric projects by the 29 FERC and of nuclear power projects by the NRC. Such licensing and other actions by federal agencies with respect to projects of the GPU Energy companies are also subject to the National Environmental Policy Act. As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including but not limited to acid rain, water quality, ambient air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, GPU may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate, 30 decommission or cleanup waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plant (MGP) sites, coal mine refuse piles and generation facilities. With regard to electromagnetic fields, GPU may be required to postpone or cancel the installation of, or replace or modify, utility plant, the costs of which could be material. The consequences of environmental issues, which could cause the postponement or cancellation of either the installation or replacement of utility plant, are unknown. GPU believes the costs described above should be recoverable, but recognizes that recovery cannot be assured. GPU records liabilities (on an undiscounted basis) where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated, and adjusts these liabilities as required to reflect changes in circumstances. At December 31, 1996, the GPU Energy companies have liabilities recorded on their balance sheets for environmental matters totaling $74 million, as follows: Company Site Description Amount (in millions) JCP&L MGP sites $45 Penelec Seward station 12 All Ash disposal sites 9* JCP&L Various non-MGP sites 6 Met-Ed/ Penelec Various other sites 2** Total $74 * (JCP&L $1; Met-Ed $2; Penelec $6) ** (Met-Ed $1; Penelec $1) For further discussion of the liabilities recorded for JCP&L's MGP sites, Penelec's Seward station property and the GPU Energy companies' ash disposal sites, see the Water, Residual Waste and Hazardous/Toxic Wastes sections, respectively. In 1996, the GPU Energy companies made capital expenditures of approximately $13 million (JCP&L $3 million; Met-Ed $2 million; Penelec $8 million) in response to environmental considerations and have budgeted approximately $14 million (JCP&L $1 million; Met-Ed $2 million; Penelec $11 million) for this purpose in 1997. The incremental annual operating and maintenance costs for such equipment is not expected to be material. Water: The federal Water Pollution Control Act (Clean Water Act) generally requires, with respect to existing steam electric power plants, the application of the best conventional or practicable pollutant control technology available and compliance with state-established water quality standards. Additionally, water quality-based effluent limits (more stringent than "technology" limits) may be applied to utility waste water discharges based on receiving stream quality. With respect to future plants, the Clean Water Act requires the application of the "best available demonstrated control technology, processes, operating methods or other alternatives." The U.S. Environmental Protection Agency (EPA) has adopted regulations that establish thermal and other limitations for effluents discharged from both existing and new steam electric generating stations. Standards of performance are developed, and enforcement of effluent limitations is accomplished, through the issuance of discharge permits by the EPA, or states 31 authorized by the EPA, which specify limitations to be applied. Discharge permits are required for all of the GPU Energy companies' steam generating stations. JCP&L has filed an application with the New Jersey Department of Environmental Protection (NJDEP) for a discharge permit for its Yards Creek pumped storage facility. Negotiations are proceeding on this with the NJDEP through a pre-draft review process. In addition, the discharge permits for JCP&L's Sayreville station and Met-Ed's Portland station have expired, but the terms of both have been administratively extended pending action by the NJDEP and Pennsylvania Department of Environmental Protection (PaDEP), respectively. GPU has obtained all other required permits for its generating facilities under the Clean Water Act. 32 The NJDEP has proposed thermal and other conditions for inclusion in the discharge permit for JCP&L's Sayreville generating station which, among other things, could require JCP&L to install cooling towers and/or modify the water intake/discharge systems at this facility. JCP&L has objected to these conditions and has requested an adjudicatory hearing with respect thereto. Implementation of these permit conditions has been stayed pending action on JCP&L's hearing request, or alternatively, through negotiation during the permit renewal process. JCP&L has made filings with the NJDEP that, JCP&L believes, justify the issuance of a thermal variance to permit the continued use of the present once-through cooling system. Based on the NJDEP's review of these demonstrations, substantial modifications may be required at this station, which may result in material capital expenditures. The discharge permit for the Oyster Creek station may, among other things, require the installation of a closed-cycle cooling system, such as a cooling tower, to meet New Jersey state water quality-based thermal effluent limitations. Although construction of such a system is not required in order to meet the EPA's regulations setting effluent limitations for the Oyster Creek station (such regulations would accept the use of the once- through cooling system now in operation at this station), a closed-cycle cooling system may be required in order to comply with the water quality standards imposed by the NJDEP for water quality certification and incorporated in the station's discharge permit. If a cooling tower is required, the capital costs could exceed $150 million. In October 1994, following six years of studies, the NJDEP issued a new Discharge to Surface Water Permit for the Oyster Creek station. The new permit grants JCP&L a variance from the New Jersey Surface Water Quality Standards. The variance allows the continued operation of the existing once-through cooling system without modifications such as cooling towers. The variance is effective through October 1999. The NJDEP could revoke the variance at any time upon failure to comply with the permit conditions. Pursuant to federal environmental monitoring requirements, Penelec has reported to the PaDEP that contaminants from coal mine refuse piles were identified in storm water run-off at Penelec's Seward station property. The refuse piles have contributed to acid mine drainage to the Conemaugh River. Penelec signed a modified Consent Order (Order), which became effective December 1996, that establishes a schedule for long-term remediation, based on future operating scenarios, including reboilering the station using fluidized bed combustion technology. The Order requires Penelec to submit a groundwater remediation plan by May 31, 1998, and also requires compliance with stormwater discharge limits contained in the Seward station's discharge permit by November 1998, if the station is repowered, or by November 1999, if the station is not repowered. In addition, the Order requires Penelec to perform an aquatic study on the Conemaugh River in order to receive a thermal variance. Penelec currently estimates that the remediation of the Seward station property will range from $12 million to $25 million and recorded a liability of $12 million at December 31, 1996. These cost estimates are subject to uncertainties based on continuing discussions with the PaDEP as to the method of remediation, the extent of remediation required and available cleanup technologies. Penelec expects recovery of these remediation costs through its restructuring plan to be filed with the PaPUC (see Competitive Environment, Management's Discussion and Analysis), and has recorded a corresponding regulatory asset of approximately $12 million at December 31, 1996. 33 In 1993, York Haven Power Company, a wholly-owned subsidiary of Met-Ed, entered into an agreement with various agencies to construct a fish passage facility at the York Haven hydroelectric project by April 2000. This agreement is part of the FERC license. The present estimated installed cost of the facility is $7 million. Construction is expected to begin in 1998. The GPU Energy companies are also subject to environmental and water diversion requirements adopted by the Delaware River Basin Commission and the Susquehanna River Basin Commission, as administered by those commissions or the PaDEP and the NJDEP. 34 Nuclear: Reference is made to Nuclear Facilities for information regarding the TMI-2 accident, its aftermath and the GPU Energy companies' other nuclear facilities. New Jersey and Connecticut have established the Northeast Compact, to construct a low-level radioactive waste (radwaste) disposal facility in New Jersey, which should commence operation by the end of 2003. Currently, the N.J. Low-Level Radwaste Disposal Facility Siting Board is looking for a volunteer community to host the site. GPUN's total share of the cost for developing, constructing, and licensing the facility is estimated to be $58 million, which will be paid through 2002. Through December 1996, GPUN has paid $6 million. As a result, at December 31, 1996, a liability of $52 million is reflected on the Consolidated Balance Sheet. JCP&L is recovering these costs from customers, and a regulatory asset has also been recorded. Pennsylvania, Delaware, Maryland and West Virginia have established the Appalachian Compact to construct a facility for the disposal of low-level radwaste in those states, including low-level radwaste from TMI-1. To date, pre-construction costs of $33 million, out of an estimated $88 million, have been paid. Eleven nuclear plants have so far shared equally in the pre- construction costs; GPUN has contributed $3 million on behalf of TMI-1. All contributors, including nonutility radwaste producers within the compact that make voluntary contributions, will receive certain credits against surcharges to be paid by all depositors of waste over a ten-year period. The methodology for the allocation of these credits has yet to be determined. In addition, $50 million of estimated construction costs will be funded by an independent contractor and recovered by the contractor through waste disposal fees collected during the first five years of the facility's operation. Delays in the facility's construction could result in additional funding requirements, however. GPUN is currently shipping low-level radwaste to the Barnwell, South Carolina radwaste disposal site. Operation of the Northeast Compact disposal facility, initially expected to commence by the mid-1990's, is now expected to be delayed until at least the end of 2003. The Appalachian Compact disposal facility, which was scheduled to open in 1999, is now estimated to be operational by 2002. Continuing delays in the completion of these disposal facilities will require GPUN to perform an evaluation of its ability to safely store radwaste beyond these dates. The GPU Energy companies have provided for future contributions to the Decontamination and Decommissioning Fund for the cleanup of uranium enrichment plants operated by the Federal Government. GPU's total liability at December 31, 1996 amounted to $34 million (JCP&L $22 million; Met-Ed $8 million; Penelec $4 million). The remaining amount recoverable from ratepayers at December 31, 1996 is $36 million (JCP&L $23 million; Met-Ed $9 million; Penelec $4 million). Air: With respect to air quality, the GPU-owned or operated generating stations are subject to certain state environmental regulations of the NJDEP and the PaDEP. The stations are also subject to certain federal environmental regulations of the EPA. One of the major sets of regulations that governs air quality is the Federal Clean Air Act of 1970 (CAA): CAA Title I sets National Ambient Air Quality Standards (NAAQS) for certain criteria pollutants. The criteria pollutants are ozone, sulfur 35 dioxide (SO2), nitrogen dioxide, particulate matter, carbon monoxide and lead. In particular, this Title has established the Ozone Transport Region (OTR), which includes 12 northeast states and the District of Columbia, to address the transport of those pollutants leading to non-attainment of the ozone NAAQS in the Northeast. Ozone control is facilitated by the control of pollutant precursors, which are nitrogen oxide (NOx) and volatile organic compounds (VOCs). Fossil fuel-fired electric generating stations are major sources of NOx emissions. Pennsylvania and New Jersey are part of the OTR, and will be required to control NOx emissions to a level that will provide for the attainment of the ozone standard in the Northeast. As an initial step, major 36 stationary sources of NOx were required to implement Reasonably Available Control Technology (RACT) by May 31, 1995. The PaDEP proposed that RACT be determined on a case-by-case basis and thus could be different for each unit or facility. RACT proposals were prepared and submitted to the PaDEP in 1994. GPU has opted for the installation of low NOx burners or other control technology, and in some cases, limitations on annual operations, in order to achieve the reductions required by the PaDEP RACT regulations. The NJDEP's RACT regulations establish maximum allowable emission rates for utility boilers based on fuel used and boiler type, and on combustion turbines based on fuel used. Existing units are eligible for emissions averaging upon approval of an averaging plan by the NJDEP. JCP&L is in compliance with NJDEP RACT regulations. A Memorandum of Understanding (MOU) has been signed by the members of the Ozone Transport Commission (OTC). The MOU calls for inner and outer zones, with seasonal NOx emission reductions from 1990 emission levels of 65% and 55%, respectively, by May 1, 1999. JCP&L, Met-Ed and Penelec will spend an estimated $1 million, $9 million and $7 million, respectively, to meet the 1999 reductions set by the OTC. The MOU also calls for a 75% reduction from 1990 emission levels by May 2003. The 2003 limits will not be imposed if a scientific demonstration to be provided by the North American Research Strategy for Tropospheric Ozone (NARSTO) finds that less restrictive limits would be necessary to obtain compliance with the ozone NAAQS. However, there is also the potential that the NARSTO effort may actually recommend more severe reductions than outlined in the MOU. A market-based NOx trading system is proposed to allow for the transfer of excess reductions encouraging alternate compliance strategies. Under mandatory, routine review of the ozone NAAQS, the EPA proposed new standards in November 1996 that will significantly increase the areas in the country which are not in attainment of the NAAQS. The EPA is soliciting comments on the proposal and must finalize the regulation by June 1997. A timeline for implementation of the new standards calls for attainment designations by June 1999; state implementation plans (SIP) by 2000 and 2002 for attainment and non-attainment areas, respectively; and attainment, with probable extensions, by 2011. The area around the Warren station has been designated as non-attainment for the SO2 NAAQS. The EPA and the PaDEP have both approved the use of a non- guideline air quality model, which is more representative and less conservative than the EPA guideline model, to evaluate the ambient air quality impacts of the station. This modeling has demonstrated attainment for the area, with no required reduction in Warren station emissions. At Shawville station, the approved use of the same non-guideline model shows attainment of the SO2 NAAQS within current Pennsylvania default SO2 emission limits. The vicinity of the Chestnut Ridge Energy Complex, which includes the Homer City, Conemaugh, Keystone and Seward stations, is officially designated as being in attainment of the SO2 NAAQS; however, both the EPA and the PaDEP have questioned the area's attainment of this standard. The EPA and the PaDEP have both approved the use of the same non-guideline model discussed above to evaluate the ambient air quality impacts of these generating stations. This model will also be used in the development of a compliance strategy for all generating stations in the Chestnut Ridge Energy Complex. Attainment of the SO2 NAAQS has been taken into account as part of the 37 design of the Conemaugh station scrubbers. In addition, Met-Ed has initiated ambient air quality modeling studies for its Portland and Titus Stations, which will take several years to complete. While the results are uncertain, these studies may result in a revised Pennsylvania SIP with source-specific emission limitations in order to attain NAAQS for SO2. If SO2 emissions need to be reduced to meet the new SIP, Met-Ed will reevaluate its options available for Portland and Titus stations. Based on the results of the studies pursuant to compliance with NAAQS, significant SO2 reductions may be required at one or more of these stations, 38 which could result in significant capital and additional operating expenditures. Under a court ordered review of the NAAQS for particulate matter, the EPA released proposed new standards in November 1996, which could significantly increase the areas in the country that are not in attainment of the standard. The particulate matter NAAQS impact NOx and SO2 emission sources. It is possible that once attainment status is defined by the EPA and the reductions required under other provisions of the CAA are realized, compliance with the particulate matter NAAQS could require further reductions in NOx and/or SO2 emissions. Certain other environmental regulations limit the amount of particulate matter emitted into the environment. GPU has installed equipment at its coal- fired generating stations and may find it necessary to either upgrade or install additional equipment at certain of its stations to consistently meet particulate emission requirements. Also, the proposed revision to the particulate matter NAAQS could trigger reduction requirements. Title III of the CAA deals with emissions of hazardous air pollutants (HAPs). As part of Title III, the EPA is charged with conducting a study to determine if fossil fuel-fired electric steam generating units pose a serious threat to public health due to emissions of HAPs. The study will seek to determine whether regulation of utility sources is appropriate and necessary. If the study results prove, through risk analysis, that regulation is required, a Maximum Achievable Control Technology (MACT) standard will be developed for utility sources. An interim study report was published in October 1996. In general, the study did not find unacceptable health risks from utility sources, but recommended further analysis of long-range transport of HAPs and the impact of mercury emissions. The interim report does not include the EPA's official recommendation as to the necessity of HAP regulation for utilities. Title IV of the CAA requires substantial reductions to meet a national cap in SO2 emissions beginning in the years 1995 and 2000 (Phases I and II, respectively). As a result, it will be necessary for the GPU Energy companies to install and operate emission control equipment, switch to slightly lower sulfur coal at some of their coal-fired plants, or purchase emission allowances in order to achieve compliance. Title IV also imposes requirements for the installation of NOx controls. To comply with Titles I and IV of the CAA, the GPU Energy companies expect to spend up to $277 million (JCP&L $46 million; Met-Ed $117 million; Penelec $114 million) for air pollution control equipment by the year 2000, of which approximately $240 million (JCP&L $43 million; Met-Ed $95 million; Penelec $102 million) has been spent as of December 31, 1996 (these amounts include costs to meet the 1999 reductions set by the OTC, as discussed on page 33). The capital costs of equipment are for the installation of flue gas desulfurization systems (scrubbers), low NOx burner technology, selective noncatalytic reduction and particulate removal upgrades. The capital costs of this equipment and the increased operating costs of the affected stations are expected to be recoverable, but recovery is not assured. Conemaugh, Portland and Shawville stations are Phase I affected units. The second of two scrubbers was completed at the Conemaugh station during 1995, as part of GPU's plans to comply with SO2 emission limitations. For the Portland station, Met-Ed plans to meet its Phase I compliance obligation 39 through the use of SO2 emission allowances, including allowances allocated directly to Portland station by the EPA and excess allowances transferred from the Conemaugh station that result from operation of the scrubbers. The Shawville station will require lower sulfur coal and/or the purchase of emission allowances to meet its Phase I requirements. GPU's current strategy for Phase II compliance is the use of fuel switching and the purchase of allowances at the Keystone and the Homer City Unit 3 stations, with periodic reviews of the cost effectiveness of the installation of scrubbers. Switching to lower sulfur coal and/or the 40 purchasing of allowances is currently planned for the Titus, Seward, Portland, Shawville and Warren stations as well. Homer City units 1 and 2 will use existing coal cleaning technology and the purchase of allowances. Additional control modifications are not expected to be necessary for Phase II compliance at the Conemaugh and Sayreville Stations. Title IV of the CAA also requires Phase I and Phase II affected units to install a continuous emission monitoring system (CEMS) and provide quality assurance for the data related to SO2, NOx, opacity and volumetric flow. In addition, Title VIII of the CAA requires all affected sources to monitor carbon dioxide emissions. Monitoring systems have been installed and certified on JCP&L, Met-Ed and Penelec's Phase I and Phase II affected units as required by EPA, NJDEP and PaDEP regulations. The PaDEP has a CEMS enforcement policy to ensure consistent compliance with air quality regulations under federal and state statutes. The CEMS enforcement policy includes matters such as visible emissions, SO2 emission standards, NOx emissions and a requirement to maintain certified CEMS equipment. In addition, this policy provides a mechanism for the payment of certain prescribed amounts to the Pennsylvania Clean Air Fund (Clean Air Fund) for air pollutant emission excess or monitoring failures. With respect to the operation of Met-Ed and Penelec's generating stations, it is not anticipated that payments to be made to the Clean Air Fund due to CEM penalties will be material in amount. The CAA has also expanded the enforcement options available to the EPA and the states and contains more stringent enforcement provisions and penalties. Moreover, citizen suits can seek civil penalties for violations of this act. CAA Title V required that comprehensive permit applications be submitted by major stationary sources to the permitting authorities in 1995. Title V may dramatically increase the level of effort required to track compliance and tabulate emissions of the numerous processes regulated by the new permits once issued. The states' Title V program also established new emission fee structures. In 1996, the Pennsylvania stations paid $1.5 million in emissions fees, and the New Jersey fees totaled approximately $55,000. Emission fees are based on the level of actual emissions and are assessed on a per ton basis. GPU continues to reassess its options for compliance with the CAA, including those that may result from the continued development of the emission trading allowance market. GPU's compliance strategy, especially with respect to Phase II, could change as a result of further review, discussions with co- owners of jointly owned stations and changes in federal and state regulatory requirements. In the fall of 1993, the Clinton Administration announced its Climate Change Action Plan (Plan), intended to reduce greenhouse gas emissions to 1990 levels by the year 2000. The Plan relies heavily on voluntary action by industry. GPU has joined approximately 630 other electric utility companies which have signed accords or are otherwise cooperating with the DOE under the Climate Challenge Program, which is the electric utility's response to the Plan. GPU's greenhouse gas management program is expected to reduce, sequester, or avoid the equivalent of eight million tons of carbon dioxide emissions between 1995 and 2000. In 1995, as a result of the United Nations Framework Convention on 41 Climate Change, over 160 countries began a negotiating process to produce a document which would address the reduction of greenhouse gas emissions after the year 2000. The U.S. State Department supports the negotiations and calls for all developed nations to commit to emission reductions. The State Department also supports global emissions credit banking and trading similar to the domestic SO2 allowance trading program. 42 Electromagnetic Fields: There have been a number of studies regarding the possibility of adverse health effects from electric and power frequency magnetic fields that are found everywhere there is electricity. While some of the studies have indicated some association between exposure to magnetic fields and cancer, other studies have indicated no such association. The studies have not shown any causal relationship between exposure to magnetic fields and cancer, or any other adverse health effects. In 1990, the EPA issued a draft report that identifies magnetic fields as a possible carcinogen, although it acknowledged that there is still scientific uncertainty surrounding these fields and their possible link to adverse health effects. On the other hand, a 1992 White House Office of Science and Technology policy report states that "there is no convincing evidence in the published literature to support the contention that exposures to extremely low frequency electric and magnetic fields generated by sources such as household appliances, video display terminals, and local power lines are demonstrable health hazards." In 1994, results of a large-scale epidemiology study of electric utility workers suggested a statistical relationship between brain cancer and the class of workers who received the highest exposure. These findings conflicted with two earlier large-scale studies that found no such relationship. In 1996, the National Research Council of the National Academy of Sciences released a report which concluded that, "Based on a comprehensive evaluation of published studies relating to the effects of power-frequency electric and magnetic fields on cells, tissues and organisms (including humans), ... the current body of evidence does not show that exposure to these fields presents a human-health hazard. Specifically, no conclusive and consistent evidence shows that exposures to residential electric and magnetic fields produce cancer, adverse neurobehavioral effects, or reproductive and developmental effects." Additional studies, which may foster a better understanding of the subject, are presently underway. Certain parties have alleged that exposure to electric and magnetic fields associated with the operation of transmission and distribution facilities will produce adverse impacts upon public health and safety and upon property values. Furthermore, regulatory actions under consideration by the NJDEP and bills introduced in the Pennsylvania legislature could, if enacted, establish a framework under which the intensity of the fields produced by electric transmission and distribution lines would be limited or otherwise regulated. The GPU Energy companies cannot determine at this time what effect, if any, this matter will have on their respective results of operations and financial position. Residual Waste: PaDEP regulations governing ash disposal sites require, among other things, groundwater assessments of landfills if existing groundwater monitoring indicates the possibility of degradation. The assessments could require the installation of additional monitoring wells and the evaluation of one year's data. If the assessments show degradation of the groundwater, Penelec and Met-Ed would be required to develop abatement plans, which may include the lining of currently unlined facilities. To date, Penelec has not identified any cases requiring abatement. Although Met-Ed's Titus station ash disposal site was upgraded in 1991 and meets many of the lined facility requirements, degradation has been identified at the site. In 1996, Met-Ed filed an abatement plan with the PaDEP in conjunction with its re-permitting application (see discussion below), which states that the problem will be abated once the station is closed and projected site closure 43 procedures have been performed. Approval of the plan by the PaDEP is pending. Also, Met-Ed's Portland station ash disposal site requires significant modifications. Various alternatives for upgrading the site are being evaluated, including beneficial uses of coal ash. The GPU Energy companies are required to submit applications for re- permitting seven (JCP&L- one; Met-Ed- three; Penelec- three) operating ash disposal sites to the PaDEP by July 1997, including projected site closure procedures and related cost estimates. Applications have been filed with the PaDEP for five (JCP&L- one; Met-Ed- two; Penelec- two) of these sites. The 44 cost estimates for the closure of these five sites range from approximately $9 million to $14 million (JCP&L $1 million; Met-Ed $2 million to $4 million; Penelec $6 million to $9 million), and a liability of $9 million (JCP&L $1 million; Met-Ed $2 million; Penelec $6 million) is reflected on the Consolidated Balance Sheet at December 31, 1996. JCP&L's share of these costs, which results from its 16.67% ownership interest in the Keystone station, has been deferred based on past rate recovery precedent, and Penelec and Met-Ed expect recovery through their restructuring plans to be filed with the PaPUC (see Competitive Environment, Management's Discussion and Analysis). As a result, a regulatory asset of $9 million (JCP&L $1 million; Met-Ed $2 million; Penelec $6 million) is reflected on the Consolidated Balance Sheet at December 31, 1996. Other PaDEP residual waste compliance requirements involve storage impoundments, which also will eventually require groundwater monitoring systems and potential assessments of impact on groundwater. Groundwater abatement may be necessary at locations where pollution problems are identified. The removal of all the residual waste ("clean closure") will be done at some impoundments to eliminate the need for future monitoring and abatement requirements. Storage impoundments must have implemented groundwater monitoring plans by 2002, but the PaDEP can require this at any time prior to this date or, at its discretion, defer full compliance beyond 2002 for some storage impoundments. Preliminary groundwater assessment plans have been conducted at Met-Ed's Portland and Titus stations' industrial waste treatment impoundments. The Portland station impoundments were upgraded in 1987 and meet the requirements for lined impoundments. The station's assessment plan is pending with the PaDEP. Additional data will be collected and evaluated to determine if abatement will be required. Although new groundwater monitoring wells were installed at the Titus station, the station impoundments will require significant modifications by 2002. There are also a number of issues still to be resolved regarding certain waivers related to Penelec's existing landfill and storage impoundment compliance requirements. These waivers could significantly reduce the cost of many of Penelec's facility compliance upgrades. Hazardous/Toxic Wastes: Under the Toxic Substances Control Act (TSCA), the EPA has adopted certain regulations governing the use, storage, testing, inspection and disposal of electrical equipment that contains polychlorinated biphenyls (PCBs). Such regulations permit the continued use and servicing of certain electrical equipment (including transformers and capacitors) that contain PCBs. GPU has met all requirements of the TSCA necessary to allow the continued use of equipment containing PCBs and has taken substantive voluntary actions to reduce the amount of PCB-containing electrical equipment. Prior to 1953, the GPU Energy companies owned and operated MGP sites in New Jersey and Pennsylvania. Waste contamination associated with the operation and dismantlement of these MGP sites is, or may be, present both on-site and off-site. Claims have been asserted against the GPU Energy companies for the cost of investigation and remediation of these sites. The amount of such remediation costs and penalties may be significant and may not be covered by insurance. To date, JCP&L has identified 17 former MGP sites and two off-site properties where MGP waste may have been sent. JCP&L has entered into cost sharing agreements with New Jersey Natural Gas Company and 45 Elizabethtown Gas Company, under which JCP&L is responsible for 60% of all costs incurred in connection with the remediation of 12 of these sites. In addition, JCP&L has entered into Administrative Consent Orders (ACOs) with the NJDEP for seven of these sites and has entered into Memoranda of Agreement (MOAs) with the NJDEP for eight of these sites. JCP&L anticipates entering into MOAs for the remaining sites. The ACOs specify the agreed upon obligations of both JCP&L and the NJDEP for remediation of the sites. The MOAs afford JCP&L greater flexibility in the schedule for investigation and remediation of the sites. 46 As of December 31, 1996, JCP&L has spent approximately $23 million in connection with the cleanup of these sites. In addition, JCP&L has recorded an estimated environmental liability of $45 million relating to expected future costs of these sites, including the two off-site properties. This estimated liability is based upon ongoing site investigations and remediation efforts, which generally involve capping the sites and pumping and treatment of ground water. Moreover, the cost to clean up these sites could be materially in excess of $45 million due to significant uncertainties, including changes in acceptable remediation methods and technologies. JCP&L defers these remediation expenditures and accrues interest as previously authorized by the NJBPU, and will continue to defer estimated future remediation costs. JCP&L has requested the establishment of an adjustment clause for the recovery of future remediation costs in its Remediation Adjustment Clause (RAC) filing, which is currently under NJBPU review. The Final Settlement pending before the NJBPU would allow JCP&L to continue its accounting treatment for remediation costs and would also provide for the RAC proceeding to remain open for future review. JCP&L is pursuing reimbursement from its insurance carriers for remediation costs already spent and for future estimated costs. In 1994, JCP&L filed a complaint with the Superior Court of New Jersey against several of its insurance carriers, relative to these MGP sites. Pretrial discovery has begun in this case. The Federal Resource Conservation and Recovery Act of 1976, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the Superfund Amendment and Reauthorization Act of 1986 authorize the EPA to issue an order compelling responsible parties to take cleanup action at any location that is determined to present an imminent and substantial danger to the public or to the environment because of an actual or threatened release of one or more hazardous substances. Pennsylvania and New Jersey have enacted legislation giving similar authority to the PaDEP and the NJDEP, respectively. Because of the nature of the GPU Energy companies' business, various by-products and substances are produced and/or handled that are classified as hazardous under one or more of these statutes. GPU generally provides for the treatment, disposal or recycling of such substances through licensed independent contractors, but these statutory provisions also impose potential responsibility for certain cleanup costs on the generators of the wastes. GPU has been formally notified by the EPA and state environmental authorities that it is among the potentially responsible parties (PRPs) who may be jointly and severally liable to pay for the costs associated with the investigation and remediation at hazardous and/or toxic waste sites in the following number of instances (in some cases, more than one company is named for a given site): JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL 5 4 2 1 1 10 In addition, certain of the GPU companies have been requested to voluntarily participate in the remediation or supply information to the EPA and state environmental authorities on several other sites for which they have not yet been formally named as PRPs, although the EPA and state authorities may nevertheless consider them as PRPs. Certain of the GPU companies have also been named in lawsuits requesting damages for hazardous and/or toxic 47 substances allegedly released into the environment. A discussion of five PRP sites, where it is probable that a loss has been incurred, follows: JCP&L, Met-Ed and GPUN are among the more than 800 PRPs under CERCLA who may be liable to pay for costs associated with the investigation and remediation of the Maxey Flats disposal site, located in Fleming County, Kentucky. A negotiated settlement among all parties has been finalized and cleanup efforts have begun. The interim remediation work is estimated to cost $63 million, for which all responsible parties will be jointly and severally liable. The estimated allocation, which is based upon a percentage of the 48 total volume of waste believed shipped to the site, is JCP&L $1.1 million, Met-Ed $400 thousand and GPUN $150 thousand. A liability is reflected on the Consolidated Balance Sheet accordingly. JCP&L has been named as a PRP by the NJDEP for allegedly disposing of hazardous waste at the Global Landfill, a dump site located in New Jersey. JCP&L signed a Consent Decree, along with about 50 other PRPs, to investigate the site and conduct site remediation. The current estimated cost of the remediation is $33 million. A final allocation of JCP&L's share has not yet been made. However, JCP&L's interim estimated allocation is $500,000. The extent of the future liability beyond the $500,000 cannot be estimated at this time. At December 31, 1996, JCP&L has recorded a liability of $500,000. Met-Ed received a PRP notice from the PaDEP asserting that it had disposed of hazardous waste at the Industrial Solvents & Chemical Company site, a former solvents recycler. This site is being remediated under the Pennsylvania Hazardous Sites Cleanup Act. Met-Ed has made immaterial payments to the PRP group for the water line installation and the removal of tanks, drums and other materials at the site. A groundwater study to determine the extent of ground water contamination was completed in 1996 and has been submitted to the PaDEP. A feasibility study will be conducted later in 1997 to determine the extent of additional remediation needed. Met-Ed cannot reasonably estimate its remaining liability until the feasibility study results are available and the PaDEP selects a remedy for ground water contamination. Penelec is part of a group of 10 PRPs who have entered into a Consent Decree with Pennsylvania and a settlement with the EPA to pay for costs associated with the remediation of a dump site located in Mill Creek Township near Erie, Pennsylvania. Penelec has paid approximately $114,000 in costs for the settlement with Pennsylvania and $600,000 in costs for the settlement with the EPA. Penelec's share of the remaining costs for the site is estimated to be $500,000 (including costs to cap the site), for which a liability has been recorded at December 31, 1996. Penelec has been named as a PRP by the EPA, along with over 1,000 other PRPs, for allegedly disposing of hazardous materials at the Jack's Creek/Sitken site, a former metals recycling and smelting operation in Mifflin County, Pennsylvania. Penelec has joined a PRP group, which is exploring a settlement with the EPA, but cannot predict the ultimate outcome of the negotiations. The ultimate cost of remediation of these and other hazardous waste sites will depend upon changing circumstances as site investigations continue, including (a) the existing technology required for site cleanup, (b) the remedial action plan chosen and (c) the extent of site contamination and the portion attributed to the GPU companies involved. GPU and the GPU Energy companies are unable to estimate the extent of possible remediation and associated costs of additional environmental matters. FRANCHISES AND CONCESSIONS JCP&L operates pursuant to franchises in the territory served by it and has the right to occupy and use the public streets and ways of the state with its poles, wires and equipment upon obtaining the consent in writing of the 49 owners of the soil, and also to occupy the public streets and ways underground with its conduits, cables and equipment, where necessary, for its electric operation. JCP&L has the requisite legal franchise for the operation of its electric business within the State of New Jersey, including in incorporated cities and towns where designations of new streets, public ways, etc., may be obtained upon application to such municipalities. JCP&L holds a FERC license expiring in 2013 authorizing it to operate and maintain the Yards Creek pumped storage hydroelectric station in which JCP&L has a 50% ownership interest. 50 Met-Ed and Penelec have the necessary franchise rights to furnish electric service in the various respective municipalities or territories in which each company now supplies such services. These electric franchise rights, which are generally nonexclusive rights, consist generally of (a) charter rights and (b) certificates of public convenience issued by the PaPUC and/or "grandfather rights". Such electric franchise rights are free from unduly burdensome restrictions and unlimited as to time, except in a few relatively minor cases and except as otherwise described below. The secondary franchise granted by the Borough of Boyertown to Met-Ed contains a provision that the Borough shall have the right at any time to purchase the electric system in the Borough at a valuation to be fixed by appraisers. Met-Ed holds a FERC license expiring in 2014 for the continued operation and maintenance of the York Haven hydroelectric project. Penelec holds a license from the FERC, which expires in 2002, for the continued operation and maintenance of the Piney hydroelectric project. In addition, Penelec and the Cleveland Electric Illuminating Company hold a license expiring in 2015 for the Seneca Pumped Storage Hydroelectric station in which Penelec has a 20% undivided interest. For the same station, Penelec and the Cleveland Electric Illuminating Company hold a Limited Power Permit issued by the Pennsylvania Water and Power Resources Board which is unlimited as to time. For purposes of the Homer City station, Penelec and New York State Electric & Gas Corporation hold a Limited Power Permit issued by the Pennsylvania Water and Power Resources Board which expires in 2017, but is renewable by the permittees until they have recovered all capital invested by them in the project. Penelec also holds a Limited Power Permit issued by the Pennsylvania Water and Power Resources Board for its Shawville station which expires in 2003, but is renewable by Penelec until it has recovered all capital invested in the project. The extent to which competition in the electric utility industry will affect the territories currently served by the GPU Energy companies and their rights to provide electric utility service in those territories is uncertain. Refer to Competitive Environment and The GPU Energy Companies' Supply Plan, Management's Discussion and Analysis for further discussion. EMPLOYEE RELATIONS At February 28, 1997, GPU had 9,061 full-time employees (JCP&L 2,363; Met-Ed 2,234; Penelec 1,895; all other companies 2,569). The nonsupervisory production and maintenance employees of the GPU Energy companies and certain of their nonsupervisory clerical employees are represented for collective bargaining purposes by local unions of the International Brotherhood of Electrical Workers (IBEW) at JCP&L, Met-Ed and Penelec and the Utility Workers Union of America (UWUA) at Penelec. Penelec's five-year contracts with the IBEW and UWUA expire on May 14, 1998 and June 30, 1998, respectively. Met-Ed's three-year contract with the IBEW expires on April 30, 1997. Negotiations between Met-Ed and the IBEW began in March 1997. JCP&L's three-year contract with the IBEW expires on October 31, 1999. 51 ITEM 2. PROPERTIES. Generating Stations At December 31, 1996, the generating stations of the GPU Energy companies had an aggregate effective capability of 6,606,000 net kilowatts (KW), as follows: Name of GPU Energy Year of Net KW Station Company Installation (Summer) COAL-FIRED: Homer City(a) Penelec 1969-1977 942,000 Shawville Penelec 1954-1960 597,000 Portland Met-Ed 1958-1962 401,000 Keystone(b) JCP&L 1967-1968 283,000 Conemaugh(c) Met-Ed 1970-1971 280,000 Titus Met-Ed 1951-1953 243,000 Seward Penelec 1950-1957 196,000 Warren Penelec 1948-1949 82,000 NUCLEAR: TMI-1(d) All 1974 786,000 Oyster Creek JCP&L 1969 619,000 GAS/OIL-FIRED: Sayreville JCP&L 1930-1958 229,000 Combustion Turbines(e) All 1960-1996 1,299,000 Other(f) All 1968-1977 298,000 Hydroelectric(g) Met-Ed/Penelec 1905-1969 64,000 PUMPED STORAGE:(h) Yards Creek JCP&L 1965 200,000 Seneca Penelec 1969 87,000 TOTAL 6,606,000 Aggregate Effective Capability of the GPU Energy Companies Net KW (Summer) (Winter) JCP&L 2,718,000 3,139,000 Met-Ed 1,604,000 1,705,000 Penelec 2,284,000 2,365,000 TOTAL 6,606,000 7,209,000 (a) Represents Penelec's undivided 50% interest in the station. (b) Represents JCP&L's undivided 16.67% interest in the station. (c) Represents Met-Ed's undivided 16.45% interest in the station. 52 (d) Jointly owned by JCP&L, Met-Ed and Penelec in percentages of 25%, 50% and 25%, respectively. (e) JCP&L - 901,000 KW, Met-Ed - 266,000 KW and Penelec 132,000 KW. (f) Consists of internal combustion and combined-cycle units (JCP&L - 290,000 KW, Met-Ed - 2,000 KW and Penelec - 6,000 KW). (g) Consists of Met-Ed's York Haven station (19,000 KW) and Penelec's Piney (27,000 KW) and Deep Creek stations (18,000 KW). (h) Represents the GPU Energy companies' undivided interests in these stations which are net users rather than net producers of electric energy. Effective June 10, 1996, the Yards Creek station was rerated from 195,000 KW. The GPU Energy companies' coal-fired, hydroelectric (other than the Deep Creek station) and pumped storage stations (other than the Yards Creek station) are located in Pennsylvania. The TMI-1 nuclear station is also located in Pennsylvania. The GPU Energy companies' gas-fired and oil-fired stations (other than some combustion turbines in Pennsylvania), the Yards Creek pumped storage station and the Oyster Creek nuclear station are located in New Jersey. The Deep Creek hydroelectric station is located in Maryland. Substantially all of the GPU Energy companies' properties are subject to the lien of their respective FMB indentures. The peak loads of the GPU Energy companies were as follows: (In KW) Company Date Peak Load GPU Energy companies Aug. 2, 1995 9,101,000 JCP&L July 9, 1993 4,564,000 Met-Ed Aug. 2, 1995 2,186,000 Penelec Dec. 11, 1995 2,589,000 53 GPU International Group Facilities At December 31, 1996, the GPU International Group had ownership interests in 21 operating natural gas-fired cogeneration and other nonutility power production facilities located both domestically and internationally, with an aggregate capability of 3,581,000 KW as follows: Name of Year of Ownership Facility Location Installation Total KW Interest (KW) U.S. Facilities Selkirk NY 1992-94 350,000 66,900 Lake* FL 1993 110,000 54,900 Pasco* FL 1993 109,000 54,400 Onondaga* NY 1993 80,000 40,000 Syracuse* NY 1992 80,000 3,500 Marcal* NJ 1989 65,000 32,500 Camarillo* CA 1988 26,500 300 Chino* CA 1987 26,000 300 FPB CA 1983 26,000 7,800 Berkeley*** CA 1987 22,500 200 Total 895,000 260,800 Non-U.S. Facilities Teesside** England 1993 1,875,000 249,400 Redditch** England 1991 29,000 14,500 Hereford** England 1980 15,000 7,500 Enersis Group** Portugal 1987-95 50,000 12,500 Micdos** Spain 1975-95 35,000 7,500 Crisa** Spain 1948-58 6,000 2,900 Termobarran- quilla* Colombia 1972-96 434,000 124,100 Guaracachi* Bolivia 1975-94 161,000 80,500 Aranjuez* Bolivia 1974-94 40,000 20,000 Karachipampa* Bolivia 1982 15,000 7,500 Brooklyn* Canada 1996 26,000 19,500 Total 2,686,000 545,900 Total capability 3,581,000 806,700 * The GPU International Group has operating responsibility for these facilities. ** The GPU International Group's ownership interests in these facilities are through its investment in Midlands. *** Sold in January 1997. 54 Transmission and Distribution System At December 31, 1996, GPU owned the following transmission and distribution facilities: JCP&L Met-Ed Penelec GPU Total Transmission and Distribution Substations 304 281 476 1,061 Aggregate Installed Transformer Capacity of Substations (in kilovoltamperes - KVA) 20,868,301 12,056,750 15,897,762 48,822,813 Transmission System: Lines (In Circuit Miles): 500 KV 18 188 235 441 345 KV - - 149 149 230 KV 570 383 650 1,603 138 KV - 3 11 14 115 KV 232 361 1,326 1,919 69 KV, 46 KV and 34.5 KV 1,764 472 364 2,600 Total 2,584 1,407 2,735 6,726 Distribution System: Line Transformer Capacity (KVA) 9,830,763 5,807,962 6,543,254 22,181,979 Pole Miles of Overhead Lines 15,746 12,613 22,136 50,495 Trench Miles of Underground Cable 6,829 1,943 1,889 10,661 In addition, Midlands, which provides service to 2.2 million customers in a 5,000 square mile area in England, owns a total of 39,000 miles of overhead and underground lines. Solaris, which provides service to more than 240,000 customers in and around a 387 square mile area in Melbourne, Australia, owns a total of 3,809 miles of overhead and underground lines (see the GPU International Group section under Item 1). ITEM 3. LEGAL PROCEEDINGS. Reference is made to Nuclear Facilities - TMI-2, Rate Proceedings, and Electric Generation and the Environment - Environmental Matters under Item 1 and to Commitments and Contingencies, Note 14 to GPU's Consolidated Financial Statements contained in Item 8 for a description of certain pending legal proceedings involving GPU. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 55 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. All of JCP&L, Met-Ed and Penelec's outstanding common stock is owned by GPU, Inc. During 1996, JCP&L, Met-Ed and Penelec paid dividends on their common stock to GPU, Inc. in the following amounts: JCP&L $135 million, Met-Ed $60 million and Penelec $40 million. In accordance with JCP&L, Met-Ed and Penelec's FMB indentures, as supplemented, the balances of retained earnings at December 31, 1996 that are restricted as to the payment of dividends on their common stock are as follows: JCP&L - $1.7 million Met-Ed - $3.4 million Penelec - $10 million Stock Trading GPU, Inc. is listed as GPU on the New York Stock Exchange. On February 3, 1997, there were approximately 43,350 registered holders of GPU, Inc. common stock. Dividends GPU, Inc. common stock dividend declaration dates are the first Thursdays of April, June, October and December. Dividend payment dates fall on the last Wednesdays of February, May, August and November. Dividend declarations and quarterly stock price ranges for 1996 and 1995 are set forth below. Common Stock Dividends Declared Price Ranges* 1996 1995 1996 1995 Quarter High/Low High/Low April $.485 $.47 First $35 1/8 31 1/8 $30 5/8 $26 1/4 June .485 .47 Second 35 1/4 30 1/8 31 28 1/4 October .485 .47 Third 35 30 1/2 31 1/4 28 1/8 December .485 .47 Fourth 34 3/8 30 3/4 34 30 5/8 * Based on New York Stock Exchange Composite Transactions as reported in the Wall Street Journal. ITEM 6. SELECTED FINANCIAL DATA. See pages F-1 and F-2 for references to each registrant's Selected Financial Data required by this item. 56 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. See pages F-1 and F-2 for references to each registrant's Management's Discussion and Analysis of Financial Condition and Results of Operations required by this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See pages F-1 and F-2 for references to each registrant's Financial Statements and Quarterly Financial Data (unaudited) required by this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 57 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Identification of Directors Information regarding GPU, Inc.'s directors is incorporated by reference to pages 2 through 6 of GPU, Inc.'s Proxy Statement for the 1997 Annual Meeting of Stockholders. The current directors of JCP&L, Met-Ed and Penelec, their ages, positions held and business experience during the past five years are as follows: Year First Elected Name Age Position JCP&L Met-Ed Penelec JCP&L/Met-Ed/Penelec: J. R. Leva (a) 64 Chairman of the Board and 1986 1992 1992 Chief Executive Officer D. Baldassari (b) 47 President 1982 1996 1996 J. G. Graham (c) 58 Vice President and 1986 1986 1986 Chief Financial Officer D. W. Myers (d) 52 Vice President - Finance 1994 1996 1996 and Rates, and Comptroller F. D. Hafer (e) 55 Director 1996 1978 1994 R. C. Arnold (f) 59 Director 1989 1989 1989 JCP&L only: G. E. Persson (g) 65 Director 1983 S. C. Van Ness (h) 63 Director 1983 S. B. Wiley (i) 67 Director 1982 (a) Mr. Leva is also Chairman and Chief Executive Officer and a director of GPUS; Chairman, Chief Executive Officer and a director of Genco; and Chairman and a director of GPUN, GPU International, Inc. (GPUI), GPU Power, Inc. (GPU Power), and GPU Electric, Inc. (GPU Electric), all subsidiaries of GPU, Inc. Mr. Leva also served as President of GPU, Inc. and GPUS from 1991 to 1996. It is anticipated that Mr. Leva will retire as Chairman and Chief Executive Officer of GPU, Inc. and other similar positions with GPU (other than director of GPU, Inc.) in May 1997. Mr. Leva is also Chairman and a director of Avon Energy Partners Holdings and Midlands Electricity plc, and a director of Utilities Mutual Insurance Company. (b) Mr. Baldassari was elected President of JCP&L in 1992, and President of Met-Ed and Penelec in 1996. Prior to that, Mr. Baldassari served as Vice President - Materials & Services of JCP&L since 1990. Mr. Baldassari is also a director of GPUS, GPUN, Genco and First Morris Bank of Morristown, NJ. (c) Mr. Graham was elected Senior Vice President of GPU, Inc. in 1989. He is also Executive Vice President, Chief Financial Officer and a director of GPUS; Vice President and Chief Financial Officer of GPUN; and a director of Genco, GPUI, GPU Power and GPU Electric. Mr. Graham is also a director of Edisto Resources, Inc., Nuclear Electric Insurance Limited, Nuclear Mutual Limited and Utilities Mutual Insurance Company. 58 (d) Mr. Myers was elected Vice President - Finance and Rates, and Comptroller of Met-Ed and Penelec in 1996, and also serves as Vice President - Finance and Rates, and Comptroller of JCP&L since 1994. Prior to that, he served as Vice President and Treasurer of GPU, Inc., GPUS, JCP&L, Met-Ed and Penelec since 1993. He served as Vice President and Comptroller of GPUN from 1986 to 1993. (e) Mr. Hafer became President, Chief Operating Officer, and a director of GPU, Inc. and President and Chief Operating Officer of GPUS in 1996. Prior to that, he was President of Penelec since 1994 and Met-Ed since 1986. It is anticipated that Mr. Hafer will be elected Chairman and Chief Executive Officer of GPU, Inc. in May 1997 upon Mr. Leva's retirement. Mr. Hafer is also a director of GPUS, GPUN, Genco, GPUI, Sovereign Bancorp Inc., Sovereign Bank, and Utilities Mutual Insurance Company. (f) Mr. Arnold has been Executive Vice President-Power Supply of GPUS since 1990. He is also a director of GPUS and Genco. (g) Mrs. Persson serves as liaison (Special Assistant Director) between the N.J. Division of Consumer Affairs and various State Boards. Prior to 1995, she was owner and President of Business Dynamics Associates of Red Bank, NJ. Mrs. Persson is a member of the United States Small Business Administration National Advisory Board, the New Jersey Small Business Advisory Council, the Board of Advisors of Brookdale Community College and the Board of Advisors of Georgian Court College. (h) Mr. Van Ness has been affiliated with the law firm of Pico, Mack, Kennedy, Jaffe, Perrella and Yoskin of Trenton, NJ since 1990. He is also a director of The Prudential Insurance Company of America. (i) Mr. Wiley has been a partner in the law firm of Wiley, Malehorn and Sirota of Morristown, NJ since 1973. He is also Chairman of First Morris Bank of Morristown, NJ. The directors of the GPU companies are elected at their respective annual meetings of stockholders to serve until the next meeting of stockholders and until their respective successors are duly elected and qualified. There are no family relationships among the directors of the GPU companies. Identification of Executive Officers The current executive officers of GPU, Inc., JCP&L, Met-Ed and Penelec, their ages, positions held and business experience during the past five years are as follows: 59 Year First Name Age Position Elected GPU: J. R. Leva (a) 64 Chairman, and Chief Executive 1992 Officer I. H. Jolles (b) 58 Senior Vice President and General 1990 Counsel J. G. Graham (c) 58 Senior Vice President and Chief 1987 Financial Officer F. A. Donofrio (d) 54 Vice President, Comptroller and 1985 Chief Accounting Officer P. C. Mezey (e) 57 Senior Vice President, GPUS 1992 T. G. Howson (f) 48 Vice President and Treasurer 1994 M. A. Nalewako (g) 62 Secretary 1988 T. G. Broughton (h) 51 President, GPUN 1996 R. L. Wise (i) 53 President, Genco 1994 F. D. Hafer (j) 55 President and Chief Operating Officer 1996 D. Baldassari (k) 47 President, JCP&L, Met-Ed, Penelec 1992 B. L. Levy (l) 41 President and Chief Executive 1991 Officer, GPUI, GPU Power and GPU Electric R. C. Arnold (m) 59 Executive Vice President, GPUS 1990 Year First Elected Name Age Position JCP&L Met-Ed Penelec JCP&L/Met-Ed/Penelec: J. R. Leva (a) 64 Chairman, and Chief 1992 1992 1992 Executive Officer D. Baldassari (k) 47 President 1992 1996 1996 I. H. Jolles (b) 58 Vice President and 1996 1996 1996 General Counsel J. G. Graham (c) 58 Vice President and 1987 1987 1987 Chief Financial Officer T. G. Howson (f) 48 Vice President 1994 1994 1994 and Treasurer D. J. Howe (n) 46 Vice President - Sales 1996 1996 1996 and Marketing D. W. Myers (o) 52 Vice President - 1994 1996 1996 Finance and Rates and Comptroller G. R. Repko (p) 51 Vice President - Customer 1996 1994 1986 Services C. B. Snyder (q) 51 Vice President - 1996 1994 1994 Public Affairs R. J. Toole (r) 54 Vice President - 1990 1989 1996 Generation R. S. Zechman (s) 53 Vice President - 1996 1990 1994 Corporate Services R. S. Cohen (t) 54 Vice President 1996 - - C. R. Fruehling 61 Vice President 1982 - - E. J. McCarthy (u) 58 Vice President 1982 - - D. L. O'Brien (v) 54 Vice President - 1981 1994 J. J. Westervelt(w) 56 Vice President 1982 - - S. L. Guibord (x) 48 Secretary 1996 1996 1996 60 (a) See Note (a) on page 49. (b) Mr. Jolles is also Executive Vice President, General Counsel and a director of GPUS, General Counsel of GPUN and Genco, and a director of GPUI, GPU Power, GPU Electric and Genco. (c) See Note (c) on page 49. (d) Mr. Donofrio was elected Vice President of GPU, Inc. in 1989. He is also Senior Vice President - Financial Controls of GPUS and a director of GPUS. (e) Mr. Mezey was elected Senior Vice President - System Services of GPUS in 1992 and is a director of GPUI, GPU Power and GPU Electric. He previously served as Vice President of GPUS from January 1991 through March 1992 and President of GPUI from February 1990 through December 1991. (f) Mr. Howson is also Vice President and Treasurer of GPUS, GPUN and Genco. He served as Vice President - Materials, Services and Regulatory Affairs and a director of JCP&L in 1992. Prior to that, he served as Vice President - Corporate Strategic Planning for GPUS since 1989. (g) Mrs. Nalewako is also Secretary of GPUS and Genco and Assistant Secretary of GPUN, JCP&L, Met-Ed and Penelec. (h) Mr. Broughton previously served as Executive Vice President of GPUN since September 1995. Prior to that, he served as Vice President-TMI of GPUN since 1991. Mr. Broughton is also a director of GPUS and Genco. (i) Mr. Wise is also a director of GPUS, GPUN, Genco, GPUI, GPU Power and GPU Electric. He previously served as President, Fossil Generation-GPUS since 1994. Prior to that, Mr. Wise served as President and a director of Penelec since December 1986. He is also a director of U.S. Bancorp and U.S. National Bank of Johnstown, PA. (j) See Note (e) on page 50. (k) See Note (b) on page 49. (l) Mr. Levy is also a director of GPUI, GPU Power, GPU Electric and Genco. He has served as President, Chief Executive Officer and director of GPUI since 1991. Prior to that, Mr. Levy served as Vice President - Business Development of GPUI since 1985. (m) See Note (f) on page 50. (n) Mr. Howe previously served as Director of Marketing and Pricing of JCP&L since 1994. Prior to that, he was Director of Competitive Strategies and Initiatives of JCP&L since 1993 and served as Manager - Cogeneration of JCP&L from 1991-1993. (o) See Note (d) on page 50. (p) Mr. Repko was elected Vice President - Customer Services of JCP&L in 1996, and also serves as Vice President - Customer Services of Met-Ed and Penelec since 1994. Prior to that, he served as Vice President - Division Operations of Penelec from 1986 to 1993. 61 (q) Mrs. Snyder was elected Vice President - Public Affairs of JCP&L in 1996 and also serves as Vice President - Public Affairs of Met-Ed and Penelec since 1994. Prior to that she was Regional Director of Met-Ed from 1991 to 1994, and Divisional Director of Met-Ed since 1990. (r) Mr. Toole was also elected a Vice President and a director of Genco in 1996. (s) Mr. Zechman was elected Vice President - Corporate Services of JCP&L in 1996 and also serves as Vice President - Corporate Services of Met-Ed and Penelec since 1994. Prior to that, he served as Vice President - Administrative Services of Met-Ed since 1992 and as Vice President - Human Resources of Met-Ed from 1990 to 1992. (t) Mr. Cohen previously served as Secretary and Corporate Counsel for JCP&L since 1986. (u) Mr. McCarthy served as Vice President - Customer Operations and Sales of JCP&L from 1994 to 1996. Prior to that, he served as Vice President - Customer Services of JCP&L since 1982. (v) Mr. O'Brien previously served as Comptroller for Met-Ed and Penelec since 1994. Prior to that, he served as Comptroller of Met-Ed since 1981. (w) Mr. Westervelt served as Vice President - Human Resources and Corporate Services of JCP&L from 1994 to 1996. Prior to that, he served as Vice President - Human Resources of JCP&L since 1982. (x) Mr. Guibord was elected Secretary of JCP&L, Met-Ed, and Penelec in 1996. He had served as Corporate Compliance Auditing Director of GPUS since 1994. Prior to that, he was a General Attorney at JCP&L. Mr. Guibord also serves as Secretary of GPUN. The executive officers of the GPU companies are elected each year by their respective Boards of Directors at the first meeting of the Board held following the annual meeting of stockholders. Executive officers hold office until the next meeting of directors following the annual meeting of stockholders and until their respective successors are duly elected and qualified. There are no family relationships among the executive officers. 62 ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item with respect to GPU, Inc. is incorporated by reference to pages 8 through 18 of GPU, Inc.'s Proxy Statement for the 1997 Annual Meeting of Stockholders. The following table sets forth remuneration paid, as required by this Item, to the most highly compensated executive officers of JCP&L, Met-Ed and Penelec for the year ended December 31, 1996. The managements of JCP&L, Met-Ed and Penelec were combined in a 1996 reorganization. Accordingly, the amounts shown below represent the aggregate remuneration paid to such executive officers by JCP&L, Met-Ed and Penelec during 1996. Remuneration of Executive Officers SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards Payouts Other Name and Annual Restricted All Other Principal Compen- Stock/Unit LTIP Compen- Position Year Salary Bonus sation(1) Awards (2) Payouts(3) sation J. R. Leva Chairman of the Board and Chief Executive Officer (4) (4) (4) (4) (4) (4) (4) JCP&L/Met-Ed/Penelec: D. Baldassari President (5) (5) (5) (5) (5) (5) (5) G. R. Repko 1996 154,625 44,000 615 - 20,085 12,562 (6) Vice President - 1995 147,100 48,000 337 - 9,930 11,491 Customer Services 1994 142,225 32,000 - 14,630 - 9,778 D. W. Myers 1996 153,333 44,000 590 - 19,265 12,505 (7) Vice President - 1995 144,000 34,000 362 - 10,665 10,687 Finance and Rates 1994 142,125 29,300 - 13,716 - 9,853 R. S. Zechman 1996 152,827 44,000 596 - 19,470 14,051 (8) Vice President - 1995 142,500 46,000 453 - 8,318 11,087 Corporate Services 1994 132,500 31,000 - 13,324 - 9,104 (1) Consists of earnings on "Long-Term Incentive Plan" ("LTIP") Compensation paid in the year the award vested. (2) The restricted units issued in 1995 and 1996 under the 1990 Stock Plan are performance based. The 1996 awards are shown in "Long-Term Incentive Plans - Awards in Last Fiscal Year" table (the LTIP table ). Dividends are paid or accrued on the aggregate restricted stock/units awarded under the 1990 Stock Plan and reinvested. The aggregate number and value (based on the stock price per share at 63 December 31, 1996) of unvested stock-equivalent restricted units (including reinvested dividends) includes the amounts shown on the LTIP table, and at the end of 1996 were: 64 Aggregate Units Aggregate Value J. R. Leva (4) (4) D. Baldassari (5) (5) G. R. Repko 3,946 $132,684 D. W. Myers 3,964 133,290 R. S. Zechman 3,744 125,892 (3) Consists of Performance Cash Incentive Awards paid on the 1990 and 1991 restricted stock awards which have vested under the 1990 Stock Plan. These amounts are designed to compensate recipients of restricted stock/unit awards for the amount of federal and state income taxes that are payable upon vesting of the restricted stock/unit awards. (4) As noted above, Mr. Leva is Chairman and Chief Executive Officer of GPU, Inc. and its Subsidiaries. Mr. Leva is compensated by GPUS for his overall service on behalf of GPU and accordingly is not compensated directly by the other subsidiary companies for his services. Information with respect to Mr. Leva's compensation is included on pages 11 through 13 in GPU, Inc.'s 1997 Proxy Statement, which is incorporated herein by reference. (5) Information with respect to Mr. Baldassari's compensation is included on pages 11 through 13 in GPU, Inc.'s 1997 Proxy Statement, which is incorporated herein by reference. (6) Consists of GPU's matching contributions under the Savings Plan ($6,000), above-market interest accrued on the retirement portion of deferred compensation ($92), and earnings on LTIP compensation not paid in the current year ($6,470). (7) Consists of GPU's matching contributions under the Savings Plan ($6,000) and earnings on LTIP compensation not paid in the current year ($6,505). (8) Consists of GPU's matching contributions under the Savings Plan ($6,000), matching contributions under the non-qualified deferred compensation plan ($1,948), above-market interest accrued on the retirement portion of deferred compensation ($9), and earnings on LTIP compensation not paid in the current year ($6,094). NOTE: The split-dollar life insurance amounts reported in the "All Other Compensation" column are equal to the present value of the interest-free use of the current year employer paid premiums to the projected date the premiums will be refunded to the respective GPU companies. 65
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
Performance Estimated future payouts Number of or other under non-stock price- shares, period until based plans(1) units or maturation Threshold Target Maximum Name other rights or payout (#) (#) (#) JCP&L/Met-Ed/Penelec: G. R. Repko 970 5 year vesting 0 970 1,940 D. W. Myers 970 5 year vesting 0 970 1,940 R. S. Zechman 970 5 year vesting 0 970 1,940 (1) The restricted units awarded in 1996 under the 1990 Stock Plan provide for a performance adjustment to the aggregate number of units vesting for the recipient, including the accumulated reinvested dividends, based on the annualized GPU Total Shareholder Return (TSR) percentile ranking against all companies in the Standard & Poor's Electric Utility Index for the period between the award and vesting dates. With a 55th percentile ranking, the performance adjustment would be 100% as reflected in the Target column. In the event that the percentile ranking is below the 55th percentile, the performance adjustment would be reduced in steps reaching 0% at the 39th percentile as reflected in the Threshold column. Should the TSR percentile ranking exceed the 59th percentile, then the performance adjustment would be increased in steps reaching 200% at the 90th percentile as reflected in the Maximum column. Under the 1990 Stock Plan, regular quarterly dividends are reinvested in additional units that are subject to the vesting restrictions of the award. Actual payouts under the Plan would be based on the aggregate number of units awarded and the units accumulated through dividend reinvestment at the time the restrictions lapse. Information with respect to Mr. Leva's and Mr. Baldassari's long-term incentive plans is included on pages 13 and 14 in GPU, Inc.'s 1997 Proxy Statement, which is incorporated herein by reference.
Proposed Remuneration of Executive Officers None of the named executive officers in the Summary Compensation Table has an employment contract. The compensation of executive officers is determined from time to time by the Personnel & Compensation Committee of the GPU, Inc. Board of Directors. Retirement Plans The GPU pension plans provide for pension benefits, payable for life after retirement, based upon years of creditable service with GPU and the employee's career average compensation as defined below. Under federal law, an employee's pension benefits that may be paid from a qualified trust under a qualified pension plan such as the GPU plans are subject to certain maximum amounts. The GPU companies also have adopted non-qualified plans providing that the portion of a participant's pension benefits which, by reason of such limitations or source, cannot be paid from such a qualified trust shall be paid directly on an unfunded basis by the participant's employer. The following table illustrates the amount of aggregate annual pension benefits from funded and unfunded sources resulting from employer contributions to the qualified trust and direct payments payable upon retirement in 1997 (computed on a single life annuity basis) to persons in specified salary and years of service classifications: 66 ESTIMATED ANNUAL RETIREMENT BENEFITS (2) (3) (4) BASED UPON CAREER AVERAGE COMPENSATION (1997 Retirement)
Career Average Compen- 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years 45 Years sation(1) of Service of Service of Service of Service of Service of Service of Service of Service $ 50,000 $ 9,338 $ 14,007 $ 18,676 $ 23,345 $ 28,014 $ 32,684 $ 37,085 $ 41,085 100,000 19,338 29,007 38,676 48,345 58,014 67,684 76,685 84,685 150,000 29,338 44,007 58,676 73,345 88,014 102,684 116,285 128,285 200,000 39,338 59,007 78,676 98,345 118,014 137,684 155,885 171,885 250,000 49,338 74,007 98,676 123,345 148,014 172,684 195,485 215,485 300,000 59,338 89,007 118,676 148,345 178,014 207,684 235,085 259,085 350,000 69,338 104,007 138,676 173,345 208,014 242,684 274,685 302,685 400,000 79,338 119,007 158,676 198,345 238,014 277,684 314,285 346,285 450,000 89,338 134,007 178,676 223,345 268,014 312,684 353,885 389,885 500,000 99,338 149,007 198,676 248,345 298,014 347,684 393,485 433,485 550,000 109,338 164,007 218,676 273,345 328,014 382,684 433,085 477,085 600,000 119,338 179,007 238,676 298,345 358,014 417,684 472,685 520,685 650,000 129,338 194,007 258,676 323,345 388,014 452,684 512,285 564,285 700,000 139,338 209,007 278,676 348,345 418,014 487,684 551,885 607,885 750,000 149,338 224,007 298,676 373,345 448,014 522,684 591,485 651,485 800,000 159,338 239,007 318,676 398,345 478,014 557,684 631,085 695,085 (1) Career Average Compensation is the average annual compensation received from January 1, 1984 to retirement and includes Salary and Bonus. The career average compensation amounts for the following named executive officers differ by more than 10% from the three year average annual compensation set forth in the Summary Compensation Table and are as follows: Messrs. Leva - $453,214; Baldassari - $191,741; Repko - $132,857; Myers - $150,696; and Zechman - $117,028. (2) Years of Creditable Service at December 31, 1996: Messrs. Leva - 45 years; Baldassari - 27 years; Repko - 30 years; Myers - 16 years; and Zechman - 27 years. (3) Based on an assumed retirement at age 65 in 1997. To reduce the above amounts to reflect a retirement benefit assuming a continual annuity to a surviving spouse equal to 50% of the annuity payable at retirement, multiply the above benefits by 90%. The estimated annual benefits are not subject to any reduction for Social Security benefits or other offset amounts. (4) Annual retirement benefits under the basic pension per the above table cannot exceed 55% of the average compensation during the highest paid 36 calendar months.
Remuneration of JCP&L Directors Nonemployee directors receive an annual retainer of $15,000, a fee of $1,000 for each Board meeting attended, and a fee of $1,000 for each Committee meeting attended. 67 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item for GPU, Inc. is incorporated by reference to page 7 of GPU, Inc.'s Proxy Statement for the 1997 Annual Meeting of Stockholders. All of the outstanding shares of JCP&L (15,371,270), Met-Ed (859,500) and Penelec (5,290,596) common stock are owned beneficially and of record by their parent, GPU, Inc., 100 Interpace Parkway, Parsippany, NJ 07054. The following table sets forth, as of February 1, 1997, the beneficial ownership of equity securities of each of the directors and each of the executive officers named in the Summary Compensation Tables, and of all directors and executive officers of each of the respective GPU Energy companies as a group. The shares owned by all directors and executive officers as a group constitute less than 1% of the total shares outstanding. Amount and Nature of Beneficial Ownership
Shares(1) Stock-Equivalent Name Title of Security Direct Indirect Restricted Units(2) JCP&L/Met-Ed/Penelec: J. R. Leva GPU Common Stock 4,450 100 44,905 F. D. Hafer GPU Common Stock 5,035 131 11,378 J. G. Graham GPU Common Stock 4,377 1,180 11,721 R. C. Arnold GPU Common Stock - 5,370 10,003 D. Baldassari GPU Common Stock 1,081 - 10,839 D. W. Myers GPU Common Stock - - 3,964 G. R. Repko GPU Common Stock 8,099 - 3,946 R. S. Zechman GPU Common Stock 964 - 3,744 JCP&L Only: G. E. Persson GPU Common Stock None S. C. Van Ness GPU Common Stock None S. B. Wiley GPU Common Stock None All Directors and Executive Officers as a Group GPU Common Stock 38,039 7,219 142,860 (1) The number of shares owned and the nature of such ownership, not being within the knowledge of GPU, have been furnished by each individual. (2) Restricted units, which do not have voting rights, represent rights (subject to vesting) to receive shares of Common Stock under the 1990 Stock Plan for Employees of GPU and Subsidiaries (the 1990 Stock Plan ). See Summary Compensation Table above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 68 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) See pages F-1 and F-2 for references to Financial Statements and Financial Statement Schedules required by this item. 1. Exhibits: 3-A Articles of Incorporation of GPU, as amended through March 27, 1990 - Incorporated by reference to Exhibit 3-A, 1989 Annual Report on Form 10-K, SEC File No. 1-6047. 3-A-1 Articles of Amendment to Articles of Incorporation of GPU dated May 5, 1995 - Incorporated by reference to Exhibit A- 4, Certificate Pursuant to Rule 24, SEC File No. 70-8569. 3-A-2 Articles of Incorporation of GPU, Inc. as amended August 1, 1996. 3-B By-Laws of GPU, as amended June 7, 1990 - Incorporated by reference to Exhibit 3-A, 1990 Annual Report on Form 10-K, SEC File No. 1-6047. 3-C Restated Certificate of Incorporation of JCP&L, as amended - Incorporated by reference to Exhibit 3-A, 1990 Annual Report on Form 10-K, SEC File No. 1-3141. 3-C-1 Certificate of Amendment to Restated Certificate of Incorporation of JCP&L, dated June 19, 1992 - Incorporated by reference to Exhibit A-2(a), Certificate Pursuant to Rule 24, SEC File No. 70-7949. 3-C-2 Certificate of Amendment to Restated Certificate of Incorporation of JCP&L, dated June 19, 1992 - Incorporated by reference to Exhibit A-2(a)(i), Certificate Pursuant to Rule 24, SEC File No. 70-7949. 3-D By-Laws of JCP&L, as amended - Incorporated by reference to Exhibit 3-B, 1993 Annual Report on Form 10-K, SEC File No. 1-3141. 3-E Restated Articles of Incorporation of Met-Ed - Incorporated by reference to Exhibit B-18, 1991 Annual Report of GPU on Form U5S, SEC File No. 30-126. 3-F By-Laws of Met-Ed dated July 27, 1995, as amended - Incorporated by reference to Exhibit 3-F, 1995 Annual Report on Form 10-K, SEC File No. 1-446. 3-G Restated Articles of Incorporation of Penelec as amended through March 10, 1992 - Incorporated by reference to Exhibit 3A, 1991 Annual Report on Form 10-K, SEC File No. 1- 3522. 3-H By-Laws of Penelec dated July 27 1995, as amended - Incorporated by reference to Exhibit 3-H, 1995 Annual Report on Form 10-K, SEC File No. 1-3522. 69 4-A Indenture of JCP&L, dated March 1, 1946, between JCP&L and United States Trust Company of New York, Successor Trustee, as amended and supplemented by eight supplemental indentures dated December 1, 1948 through June 1, 1960 - Incorporated by reference to JCP&L's Instruments of Indebtedness Nos. 1 to 7, inclusive, and 9 and 10 filed as part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292. 4-A-1 Ninth Supplemental Indenture of JCP&L, dated November 1, 1962 - Incorporated by reference to Exhibit 2-C, Registration No. 2-20732. 4-A-2 Tenth Supplemental Indenture of JCP&L, dated October 1, 1963 - Incorporated by reference to Exhibit 2-C, Registration No. 2-21645. 4-A-3 Eleventh Supplemental Indenture of JCP&L, dated October 1, 1964 - Incorporated by reference to Exhibit 5-A-3, Registration No. 2-59785. 4-A-4 Twelfth Supplemental Indenture of JCP&L, dated November 1, 1965 - Incorporated by reference to Exhibit 5-A-4, Registration No. 2-59785. 4-A-5 Thirteenth Supplemental Indenture of JCP&L, dated August 1, 1966 - Incorporated by reference to Exhibit 4-C, Registration No. 2-25124. 4-A-6 Fourteenth Supplemental Indenture of JCP&L, dated September 1, 1967 - Incorporated by reference to Exhibit 5-A-6, Registration No. 2-59785. 4-A-7 Fifteenth Supplemental Indenture of JCP&L, dated October 1, 1968 - Incorporated by reference to Exhibit 5-A-7, Registration No. 2-59785. 4-A-8 Sixteenth Supplemental Indenture of JCP&L, dated October 1, 1969 - Incorporated by reference to Exhibit 5-A-8, Registration No. 2-59785. 4-A-9 Seventeenth Supplemental Indenture of JCP&L, dated June 1, 1970 - Incorporated by reference to Exhibit 5-A-9, Registration No. 2-59785. 4-A-10 Eighteenth Supplemental Indenture of JCP&L, dated December 1, 1970 - Incorporated by reference to Exhibit 5-A-10, Registration No. 2-59785. 4-A-11 Nineteenth Supplemental Indenture of JCP&L, dated February 1, 1971 - Incorporated by reference to Exhibit 5-A-11, Registration No. 2-59785. 4-A-12 Twentieth Supplemental Indenture of JCP&L, dated November 1, 1971 - Incorporated by reference to Exhibit 5-A-12, Registration No. 2-59875. 70 4-A-13 Twenty-first Supplemental Indenture of JCP&L, dated August 1, 1972 - Incorporated by reference to Exhibit 5-A-13, Registration No. 2-59785. 4-A-14 Twenty-second Supplemental Indenture of JCP&L, dated August 1, 1973 - Incorporated by reference to Exhibit 5-A-14, Registration No. 2-59785. 4-A-15 Twenty-third Supplemental Indenture of JCP&L, dated October 1, 1973 - Incorporated by reference to Exhibit 5-A-15, Registration No. 2-59785. 4-A-16 Twenty-fourth Supplemental Indenture of JCP&L, dated December 1, 1973 - Incorporated by reference to Exhibit 5-A- 16, Registration No. 2-59785. 4-A-17 Twenty-fifth Supplemental Indenture of JCP&L, dated November 1, 1974 - Incorporated by reference to Exhibit 5-A-17, Registration No. 2-59785. 4-A-18 Twenty-sixth Supplemental Indenture of JCP&L, dated March 1, 1975 - Incorporated by reference to Exhibit 5-A-18, Registration No. 2-59785. 4-A-19 Twenty-seventh Supplemental Indenture of JCP&L, dated July 1, 1975 - Incorporated by reference to Exhibit 5-A-19, Registration No. 2-59785. 4-A-20 Twenty-eighth Supplemental Indenture of JCP&L, dated October 1, 1975 - Incorporated by reference to Exhibit 5-A-20, Registration No. 2-59785. 4-A-21 Twenty-ninth Supplemental Indenture of JCP&L, dated February 1, 1976 - Incorporated by reference to Exhibit 5-A-21, Registration No. 2-59785. 4-A-22 Supplemental Indenture No. 29A of JCP&L, dated May 31, 1976 - Incorporated by reference to Exhibit 5-A-22, Registration No. 2-59785. 4-A-23 Thirtieth Supplemental Indenture of JCP&L, dated June 1, 1976 - Incorporated by reference to Exhibit 5-A-23, Registration No. 2-59785. 4-A-24 Thirty-first Supplemental Indenture of JCP&L, dated May 1, 1977 - Incorporated by reference to Exhibit 5-A-24, Registration No. 2-59785. 4-A-25 Thirty-second Supplemental Indenture of JCP&L, dated January 20, 1978 - Incorporated by reference to Exhibit 5-A-25, Registration No. 2-60438. 4-A-26 Thirty-third Supplemental Indenture of JCP&L, dated January 1, 1979 - Incorporated by reference to Exhibit A-20(b), Certificate Pursuant to Rule 24, SEC File No. 70-6242. 71 4-A-27 Thirty-fourth Supplemental Indenture of JCP&L, dated June 1, 1979 - Incorporated by reference to Exhibit A-28, Certificate Pursuant to Rule 24, SEC File No. 70-6290. 4-A-28 Thirty-sixth Supplemental Indenture of JCP&L, dated October 1, 1979 - Incorporated by reference to Exhibit A-30, Certificate Pursuant to Rule 24, SEC File No. 70-6354. 4-A-29 Thirty-seventh Supplemental Indenture of JCP&L, dated September 1, 1984 - Incorporated by reference to Exhibit A- 1(cc), Certificate Pursuant to Rule 24, SEC File No. 70- 7001. 4-A-30 Thirty-eighth Supplemental Indenture of JCP&L, dated July 1, 1985 - Incorporated by reference to Exhibit A-1(dd), Certificate Pursuant to Rule 24, SEC File No. 70-7109. 4-A-31 Thirty-ninth Supplemental Indenture of JCP&L, dated April 1, 1988 - Incorporated by reference to Exhibit A-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-7263. 4-A-32 Fortieth Supplemental Indenture of JCP&L, dated June 14, 1988 - Incorporated by reference to Exhibit A-1(ff), Certificate Pursuant to Rule 24, SEC File No. 70-7603. 4-A-33 Forty-first Supplemental Indenture of JCP&L, dated April 1, 1989 - Incorporated by reference to Exhibit A-1(gg), Certificate Pursuant to Rule 24, SEC File No. 70-7603. 4-A-34 Forty-second Supplemental Indenture of JCP&L, dated July 1, 1989 - Incorporated by reference to Exhibit A-1(hh), Certificate Pursuant to Rule 24, SEC File No. 70-7603. 4-A-35 Forty-third Supplemental Indenture of JCP&L, dated March 1, 1991 - Incorporated by reference to Exhibit 4-A-35, Registration No. 33-45314. 4-A-36 Forty-fourth Supplemental Indenture of JCP&L, dated March 1, 1992 - Incorporated by reference to Exhibit 4-A-36, Registration No. 33-49405. 4-A-37 Forty-fifth Supplemental Indenture of JCP&L, dated October 1, 1992 - Incorporated by reference to Exhibit 4-A-37, Registration No. 33-49405. 4-A-38 Forty-sixth Supplemental Indenture of JCP&L, dated April 1, 1993 - Incorporated by reference to Exhibit C-15, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-A-39 Forty-seventh Supplemental Indenture of JCP&L, dated April 10, 1993 - Incorporated by reference to Exhibit C-16, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-A-40 Forty-eighth Supplemental Indenture of JCP&L, dated April 15, 1993 - Incorporated by reference to Exhibit C-17, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126. 72 4-A-41 Forty-ninth Supplemental Indenture of JCP&L, dated October 1, 1993 - Incorporated by reference to Exhibit C-18, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-A-42 Fiftieth Supplemental Indenture of JCP&L, dated August 1, 1994 - Incorporated by reference to Exhibit C-19, 1994 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-A-43 Fifty-first Supplemental Indenture of JCP&L, dated August 15, 1996. 4-B Indenture of Met-Ed, dated November 1, 1944 with United States Trust Company of New York, Successor Trustee, as amended and supplemented by fourteen supplemental indentures dated February 1, 1947 through May 1, 1960 - Incorporated by reference to Met-Ed's Instruments of Indebtedness Nos. 1 to 14, inclusive and 16, filed as part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292. 4-B-1 Supplemental Indenture of Met-Ed, dated December 1, 1962 - Incorporated by reference to Exhibit 2-E(1), Registration No. 2-59678. 4-B-2 Supplemental Indenture of Met-Ed, dated March 20, 1964 - Incorporated by reference to Exhibit 2-E(2), Registration No. 2-59678. 4-B-3 Supplemental Indenture of Met-Ed, dated July 1, 1965 - Incorporated by reference to Exhibit 2-E(3), Registration No. 2-59678. 4-B-4 Supplemental Indenture of Met-Ed, dated June 1, 1966 - Incorporated by reference to Exhibit 2-B-4, Registration No. 2-24883. 4-B-5 Supplemental Indenture of Met-Ed, dated March 22, 1968 - Incorporated by reference to Exhibit 4-C-5, Registration No. 2-29644. 4-B-6 Supplemental Indenture of Met-Ed, dated September 1, 1968 - Incorporated by reference to Exhibit 2-E(6), Registration No. 2-59678. 4-B-7 Supplemental Indenture of Met-Ed, dated August 1, 1969 - Incorporated by reference to Exhibit 2-E(7), Registration No. 2-59678. 4-B-8 Supplemental Indenture of Met-Ed, dated November 1, 1971 - Incorporated by reference to Exhibit 2-E(8), Registration No. 2-59678. 4-B-9 Supplemental Indenture of Met-Ed, dated May 1, 1972 - Incorporated by reference to Exhibit 2-E(9), Registration No. 2-59678. 73 4-B-10 Supplemental Indenture of Met-Ed, dated December 1, 1973 - Incorporated by reference to Exhibit 2-E(10), Registration No. 2-59678. 4-B-11 Supplemental Indenture of Met-Ed, dated October 30, 1974 - Incorporated by reference to Exhibit 2-E(11), Registration No. 2-59678. 4-B-12 Supplemental Indenture of Met-Ed, dated October 31, 1974 - Incorporated by reference to Exhibit 2-E(12), Registration No. 2-59678. 4-B-13 Supplemental Indenture of Met-Ed, dated March 20, 1975 - Incorporated by reference to Exhibit 2-E(13), Registration No. 2-59678. 4-B-14 Supplemental Indenture of Met-Ed, dated September 25, 1975 - Incorporated by reference to Exhibit 2-E(15), Registration No. 2-59678. 4-B-15 Supplemental Indenture of Met-Ed, dated January 12, 1976 - Incorporated by reference to Exhibit 2-E(16), Registration No. 2-59678. 4-B-16 Supplemental Indenture of Met-Ed, dated March 1, 1976 - Incorporated by reference to Exhibit 2-E(17), Registration No. 2-59678. 4-B-17 Supplemental Indenture of Met-Ed, dated September 28, 1977 - Incorporated by reference to Exhibit 2-E(18), Registration No. 2-62212. 4-B-18 Supplemental Indenture of Met-Ed, dated January 1, 1978 - Incorporated by reference to Exhibit 2-E(19), Registration No. 2-62212. 4-B-19 Supplemental Indenture of Met-Ed, dated September 1, 1978 - Incorporated by reference to Exhibit 4-A(19), Registration No. 33-48937. 4-B-20 Supplemental Indenture of Met-Ed, dated June 1, 1979 - Incorporated by reference to Exhibit 4-A(20), Registration No. 33-48937. 4-B-21 Supplemental Indenture of Met-Ed, dated January 1, 1980 - Incorporated by reference to Exhibit 4-A(21), Registration No. 33-48937. 4-B-22 Supplemental Indenture of Met-Ed, dated September 1, 1981 - Incorporated by reference to Exhibit 4-A(22), Registration No. 33-48937. 4-B-23 Supplemental Indenture of Met-Ed, dated September 10, 1981 - Incorporated by reference to Exhibit 4-A(23), Registration No. 33-48937. 74 4-B-24 Supplemental Indenture of Met-Ed, dated December 1, 1982 - Incorporated by reference to Exhibit 4-A(24), Registration No. 33-48937. 4-B-25 Supplemental Indenture of Met-Ed, dated September 1, 1983 - Incorporated by reference to Exhibit 4-A(25), Registration No. 33-48937. 4-B-26 Supplemental Indenture of Met-Ed, dated September 1, 1984 - Incorporated by reference to Exhibit 4-A(26), Registration No. 33-48937. 4-B-27 Supplemental Indenture of Met-Ed, dated March 1, 1985 - Incorporated by reference to Exhibit 4-A(27), Registration No. 33-48937. 4-B-28 Supplemental Indenture of Met-Ed, dated September 1, 1985 - Incorporated by reference to Exhibit 4-A(28), Registration No. 33-48937. 4-B-29 Supplemental Indenture of Met-Ed, dated June 1, 1988 - Incorporated by reference to Exhibit 4-A(29), Registration No. 33-48937. 4-B-30 Supplemental Indenture of Met-Ed, dated April 1, 1990 - Incorporated by reference to Exhibit 4-A(30), Registration No. 33-48937. 4-B-31 Amendment dated May 22, 1990 to Supplemental Indenture of Met-Ed, dated April 1, 1990 - Incorporated by reference to Exhibit 4-A(31), Registration No. 33-48937. 4-B-32 Supplemental Indenture of Met-Ed, dated September 1, 1992 - Incorporated by reference to Exhibit 4-A(32)(a), Registration No. 33-48937. 4-B-33 Supplemental Indenture of Met-Ed, dated December 1, 1993 - Incorporated by reference to Exhibit C-58, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-B-34 Supplemental Indenture of Met-Ed dated July 15, 1995 - Incorporated by reference to Exhibit 4-B-35, 1995 Annual Report on Form 10-K, SEC File No. 1-446. 4-B-35 Supplemental Indenture of Met-Ed dated August 15, 1996. 4-C Mortgage and Deed of Trust of Penelec dated January 1, 1942 between Penelec and United States Trust Company of New York, Successor Trustee, and indentures supplemental thereto dated March 7, 1942 through May 1, 1960 - Incorporated by reference to Penelec's Instruments of Indebtedness Nos. 1- 20, inclusive, filed as a part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292. 75 4-C-1 Supplemental Indentures to Mortgage and Deed of Trust of Penelec dated May 1, 1961 through December 1, 1977 - Incorporated by reference to Exhibit 2-D(1) to 2-D(19), Registration No. 2-61502. 4-C-2 Supplemental Indenture of Penelec dated June 1, 1978 - Incorporated by reference to Exhibit 4-A(2), Registration No. 33-49669. 4-C-3 Supplemental Indenture of Penelec dated June 1, 1979 - Incorporated by reference to Exhibit 4-A(3), Registration No. 33-49669. 4-C-4 Supplemental Indenture of Penelec dated September 1, 1984 - Incorporated by reference to Exhibit 4-A(4), Registration No. 33-49669. 4-C-5 Supplemental Indenture of Penelec dated December 1, 1985 - Incorporated by reference to Exhibit 4-A(5), Registration No. 33-49669. 4-C-6 Supplemental Indenture of Penelec dated December 1, 1986 - Incorporated by reference to Exhibit 4-A(6), Registration No. 33-49669. 4-C-7 Supplemental Indenture of Penelec dated May 1, 1989 - Incorporated by reference to Exhibit 4-A(7), Registration No. 33-49669. 4-C-8 Supplemental Indenture of Penelec dated December 1, 1990- Incorporated by reference to Exhibit 4-A(8), Registration No. 33-45312. 4-C-9 Supplemental Indenture of Penelec dated March 1, 1992 - Incorporated by reference to Exhibit 4-A(9), Registration No. 33-45312. 4-C-10 Supplemental Indenture of Penelec, dated June 1, 1993 - Incorporated by reference to Exhibit C-73, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-C-11 Supplemental Indenture of Penelec dated November 1, 1995 - Incorporated by reference to Exhibit 4-C-11, 1995 Annual Report on Form 10-K, SEC File No. 1-3522. 4-C-12 Supplemental Indenture of Penelec dated August 15, 1996. 4-D Subordinated Debenture Indenture of JCP&L dated May 1, 1995 - Incorporated by reference to Exhibit A-8(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. 4-E Subordinated Debenture Indenture of Met-Ed dated August 1, 1994 - Incorporated by reference to Exhibit A-8(a), Certificate Pursuant to Rule 24, SEC File No. 70-8401. 76 4-F Subordinated Debenture Indenture of Penelec dated July 1, 1994 - Incorporated by reference to Exhibit A-8(a), Certificate Pursuant to Rule 24, SEC File No. 70-8403. 4-G Amended and Restated Limited Partnership Agreement of JCP&L Capital, L.P., dated May 11, 1995 - Incorporated by reference to Exhibit A-5(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. 4-H Action Creating Series A Preferred Securities of JCP&L Capital, L.P., dated May 11, 1995 - Incorporated by reference to Exhibit A-6(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. 4-I Payment and Guarantee Agreement of JCP&L, dated May 18, 1995 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. 4-J Amended and Restated Limited Partnership Agreement of Met-Ed Capital, L.P., dated August 16, 1994 - Incorporated by reference to Exhibit A-5(a), Certificate Pursuant to Rule 24, SEC File No. 70-8401. 4-K Action Creating Series A Preferred Securities of Met-Ed Capital, L.P., dated August 16, 1994 - Incorporated by reference to Exhibit A-6(a), Certificate Pursuant to Rule 24, SEC File No. 70-8401. 4-L Payment and Guarantee Agreement of Met-Ed, dated August 23, 1994 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-8401. 4-M Amended and Restated Limited Partnership Agreement of Penelec Capital, L.P., dated June 27, 1994 - Incorporated by reference to Exhibit A-5(a), Certificate Pursuant to Rule 24, SEC File No. 70-8403. 4-N Action Creating Series A Preferred Securities of Penelec Capital, L.P., dated June 27, 1994 - Incorporated by reference to Exhibit A-6(a), Certificate Pursuant to Rule 24, SEC File No. 70-8403. 4-O Payment and Guarantee Agreement of Penelec, dated July 5, 1994 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-8403. 10-A GPU System Companies Deferred Compensation Plan dated August 1, 1996. 10-B GPU System Companies Master Directors' Benefits Protection Trust dated November 7, 1996. 10-C GPU System Companies Master Executives' Benefits Protection Trust dated August 1, 1996. 77 10-D Employee Incentive Compensation Plan of JCP&L dated April 1, 1995 - Incorporated by reference to Exhibit 10-D, 1995 Annual Report on Form 10-K, SEC File No. 1-3141. 10-E Employee Incentive Compensation Plan of Met-Ed dated April 1, 1995 - Incorporated by reference to Exhibit 10-E, 1995 Annual Report on Form 10-K, SEC File No. 1-446. 10-F Employee Incentive Compensation Plan of Penelec dated April 1, 1995 - Incorporated by reference to Exhibit 10-F, 1995 Annual Report on Form 10-K, SEC File No. 1-3522. 10-G Incentive Compensation Plan for Elected Officers of JCP&L dated August 1, 1996. 10-H Incentive Compensation Plan for Elected Officers of Met-Ed dated August 1, 1996. 10-I Incentive Compensation Plan for Elected Officers of Penelec dated August 1, 1996. 10-J Deferred Remuneration Plan for Outside Directors of JCP&L dated November 7, 1996. 10-K JCP&L Supplemental and Excess Benefits Plan dated August 1, 1996. 10-L Met-Ed Supplemental and Excess Benefits Plan dated August 1, 1996. 10-M Penelec Supplemental and Excess Benefits Plan dated August 1, 1996. 10-N Letter agreements dated November 1, 1996 relating to supplemental pension benefits for J.R. Leva. 10-O Letter agreement dated November 1, 1996 relating to terms of employment and pension benefits for I.H. Jolles. 10-P Letter agreement dated November 1, 1996 relating to supplemental pension benefits for J.G. Graham. 10-Q GPU, Inc. Restricted Stock Plan for Outside Directors dated November 7, 1996. 10-R Retirement Plan for Outside Directors of GPU, Inc. dated November 7, 1996. 10-S Deferred Remuneration Plan for Outside Directors of GPU, Inc. dated November 7, 1996. 10-T Amended and Restated Nuclear Material Lease Agreement, dated November 17, 1995, between Oyster Creek Fuel Corp. and JCP&L - Incorporated by reference to Exhibit B-2(a)(i), Certificate Pursuant to Rule 24, SEC File No. 70-7862. 78 10-U Amended and Restated Nuclear Material Lease Agreement, dated November 17, 1995, between TMI-1 Fuel Corp. and JCP&L - Incorporated by reference to Exhibit B-2(a)(ii), Certificate Pursuant to Rule 24, SEC File No. 70-7862. 10-V Letter Agreement, dated November 17, 1995, from JCP&L relating to Oyster Creek Nuclear Material Lease Agreement - Incorporated by reference to Exhibit B-2(b)(i), Certificate Pursuant to Rule 24, SEC File No. 70-7862. 10-W Letter Agreement, dated November 17, 1995, from JCP&L relating to JCP&L TMI-1 Nuclear Material Lease Agreement - Incorporated by reference to Exhibit B-2(b)(ii), Certificate Pursuant to Rule 24, SEC File No. 70-7862. 10-X Amended and Restated Trust Agreement, dated November 17, 1995, between United States Trust Company of New York, as Owner Trustee, Lord Fuel Corp., as Trustor and Beneficiary, and JCP&L, Met-Ed and Penelec - Incorporated by reference to Exhibit B-3(i), Certificate Pursuant to Rule 24, SEC File No. 70-7862. 10-Y Amended and Restated Nuclear Material Lease Agreement, dated November 17, 1995, between TMI-1 Fuel Corp. and Met-Ed - Incorporated by reference to Exhibit B-2(a)(iii), Certificate Pursuant to Rule 24, SEC File No. 70-7862. 10-Z Letter Agreement, dated November 17, 1995, from Met-Ed relating to Met-Ed TMI-1 Nuclear Material Lease Agreement - Incorporated by reference to Exhibit B-2(b)(i), Certificate Pursuant to Rule 24, SEC File No. 70-7862. 10-AA Amended and Restated Nuclear Material Lease Agreement, dated November 17, 1995, between TMI-1 Fuel Corp. and Penelec - Incorporated by reference to Exhibit B-2(a)(iv), Certificate Pursuant to Rule 24, SEC File No. 70-7862. 10-BB Letter Agreement, dated November 17, 1995, from Penelec relating to Penelec Nuclear Material Lease Agreement - Incorporated by reference to Exhibit B-2(b)(i), Certificate Pursuant to Rule 24, SEC File No. 70-7862. 10-CC GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries as amended and restated to reflect amendments through August 1, 1996. 12 Statements Showing Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. A - GPU B - JCP&L C - Met-Ed D - Penelec 79 21 Subsidiaries of the Registrant A - JCP&L B - Met-Ed C - Penelec 23 Consent of Independent Accountants A - GPU B - JCP&L C - Met-Ed D - Penelec 27 Financial Data Schedule A - GPU B - JCP&L C - Met-Ed D - Penelec (b) Reports on Form 8-K: A - GPU, Inc. Dated October 21, 1996, under Item 5 (Other Events). Dated December 2, 1996, under Item 5 (Other Events). B - JCP&L Dated October 21, 1996, under Item 5 (Other Events). C - Met-Ed Dated November 20, 1996, under Item 5 (Other Events). Dated December 2, 1996, under Item 5 (Other Events). D - Penelec Dated November 20, 1996, under Item 5 (Other Events). Dated December 2, 1996, under Item 5 (Other Events). 80 GPU, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GPU, INC. Dated: March 10, 1997 BY: /s/ J. R. Leva J. R. Leva, Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ J. R. Leva March 10, 1997 J. R. Leva, Chairman (Chief Executive Officer) and President /s/ F. D. Hafer March 10, 1997 F. D. Hafer, President (Chief Operating Officer) and Director /s/ J. G. Graham March 10, 1997 J. G. Graham, Senior Vice President (Chief Financial Officer) /s/ F. A. Donofrio March 10, 1997 F. A. Donofrio, Vice President and Comptroller (Chief Accounting Officer) /s/ T. H. Black March 10, 1997 T. H. Black, Director /s/ T. B. Hagen March 10, 1997 T. B. Hagen, Director /s/ H. F. Henderson March 10, 1997 H. F. Henderson, Jr., Director /s/ J. M. Pietruski March 10, 1997 J. M. Pietruski, Director /s/ C. A. Rein March 10, 1997 C. A. Rein, Director /s/ P. R. Roedel March 10, 1997 P. R. Roedel, Director /s/ B. S. Townsend March 10, 1997 B. S. Townsend, Director /s/ C. A. H. Trost March 10, 1997 C. A. H. Trost, Director /s/ P. K. Woolf March 10, 1997 P. K. Woolf, Director 81 JERSEY CENTRAL POWER & LIGHT COMPANY SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. JERSEY CENTRAL POWER & LIGHT COMPANY Dated: March 10, 1997 BY: /s/ D. Baldassari D. Baldassari, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ J. R. Leva March 10, 1997 J. R. Leva, Chairman (Principal Executive Officer) and Director /s/ D. Baldassari March 10, 1997 D. Baldassari, President (Principal Operating Officer) and Director /s/ J. G. Graham March 10, 1997 J. G. Graham, Vice President (Principal Financial Officer) and Director /s/ D. W. Myers March 10, 1997 D. W. Myers, Vice President-Comptroller (Principal Accounting Officer) and Director /s/ R. C. Arnold March 10, 1997 R. C. Arnold, Director /s/ F. D. Hafer March 10, 1997 F. D. Hafer, Director /s/ G. E. Persson March 10, 1997 G. E. Persson, Director /s/ S. C. Van Ness March 10, 1997 S. C. Van Ness, Director /s/ S. B. Wiley March 10, 1997 S. B. Wiley, Director 82 METROPOLITAN EDISON COMPANY SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. METROPOLITAN EDISON COMPANY Dated: March 10, 1997 BY: /s/ D. Baldassari D. Baldassari, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ J. R. Leva March 10, 1997 J. R. Leva, Chairman (Principal Executive Officer) and Director /s/ D. Baldassari March 10, 1997 D. Baldassari, President (Principal Operating Officer) and Director /s/ J. G. Graham March 10, 1997 J. G. Graham, Vice President (Principal Financial Officer) and Director /s/ D. W. Myers March 10, 1997 D. W. Myers, Vice President-Comptroller (Principal Accounting Officer) and Director /s/ R. C. Arnold March 10, 1997 R. C. Arnold, Director /s/ F. D. Hafer March 10, 1997 F. D. Hafer, Director 83 PENNSYLVANIA ELECTRIC COMPANY SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. PENNSYLVANIA ELECTRIC COMPANY Dated: March 10, 1997 BY: /s/ D. Baldassari D. Baldassari, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ J. R. Leva March 10, 1997 J. R. Leva, Chairman (Principal Executive Officer) and Director /s/ D. Baldassari March 10, 1997 D. Baldassari, President (Principal Operating Officer) and Director /s/ J. G. Graham March 10, 1997 J. G. Graham, Vice President (Principal Financial Officer) and Director /s/ D. W. Myers March 10, 1997 D. W. Myers, Vice President-Comptroller (Principal Accounting Officer) and Director /s/ R. C. Arnold March 10, 1997 R. C. Arnold, Director /s/ F. D. Hafer March 10, 1997 F. D. Hafer, Director 84 Exhibit 12-A Page 1 of 2 GPU, INC. AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands)
Twelve Months Ended December 31, 1996 1995 1994 1993 1992 OPERATING REVENUES $3,918,089 $3,804,656 $3,649,516 $3,596,090 $3,434,153 OPERATING EXPENSES 3,243,238 3,070,150 3,008,944 2,868,135 2,821,710 Interest portion of rentals (A) 26,093 27,362 24,655 25,536 28,374 Fixed charges of service company subsidiaries (B) 3,695 3,666 3,637 4,204 4,366 Net expense 3,213,450 3,039,122 2,980,652 2,838,395 2,788,970 OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 10,672 14,671 11,827 9,936 12,580 Other income / (expense), net 28,151 216,110 (152,236) (7,579) 30,503 Fixed charges of the GPU International Group (C) 29,683 1,717 15 4 9 Total other income and deductions 68,506 232,498 (140,394) 2,361 43,092 EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $ 773,145 $ 998,032 $ 528,470 $ 760,056 $ 688,275 FIXED CHARGES: Interest on funded indebtedness $ 216,352 $ 192,488 $ 186,259 $ 191,142 $ 178,176 Other interest (D) 59,398 56,396 47,498 21,525 19,604 Preferred stock dividends of subsidiaries on a pretax basis (F) 24,008 26,756 30,314 46,270 58,637 Interest portion of rentals (A) 26,093 27,362 24,655 25,536 28,374 Total fixed charges $ 325,851 $ 303,002 $ 288,726 $ 284,473 $ 284,791 RATIO OF EARNINGS TO FIXED CHARGES 2.37 3.29 1.83 2.67 2.42 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (E) 2.37 3.29 1.83 2.67 2.42 Exhibit 12-A Page 2 of 2 GPU, INC. AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Notes: (A) The Company has included the equivalent of the interest portion of all rentals charged to income as fixed charges for this statement and has excluded such components from operating expenses. (B) Represents fixed charges of GPU Service, Inc. and GPU Nuclear, Inc. which are accounted for as operating expenses in the Company's consolidated income statement. The Company has removed the fixed charges from operating expenses and included such amounts in fixed charges as interest on funded indebtedness and other interest for this statement. (C) Represents fixed charges of the GPU International Group which are accounted for as other income and deductions in the Company's consolidated income statement. The Company has removed the fixed charges from other income and deductions and included such amounts in fixed charges as interest on funded indebtedness and other interest for this statement. (D) Includes dividends on subsidiary-obligated mandatorily redeemable preferred securities of $28,888, $24,816 and $7,692 for the years 1996, 1995 and 1994, respectively. (E) GPU Inc., the parent holding company, does not have any preferred stock outstanding, therefore, the ratio of earnings to combined fixed charges and preferred stock dividends is the same as the ratio of earnings to fixed charges. (F) Calculation of preferred stock dividends of subsidiaries on a pretax basis is as follows: Twelve Months Ended December 31, 1996 1995 1994 1993 1992 Income before provision for income taxes and preferred stock dividends of subsidiaries and gain on preferred stock reacquisition $471,302 $721,786 $270,058 $521,853 $462,121 Income before preferred stock dividends of subsidiaries and gain on preferred stock reacquisition 304,583 457,080 184,380 324,430 288,193 Pretax earnings ratio 154.7% 157.9% 146.5% 160.9% 160.4% Preferred stock dividends of subsidiaries 15,519 16,945 20,692 28,757 36,557 Preferred stock dividends of subsidiaries on a pretax basis 24,008 26,756 30,314 46,270 58,637 Exhibit 12-B Page 1 of 2 JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Twelve Months Ended December 31, 1996 1995 1994 1993 1992 OPERATING REVENUES $2,057,918 $2,035,928 $1,952,425 $1,935,909 $1,774,071 OPERATING EXPENSES 1,729,532 1,653,387 1,622,399 1,600,984 1,536,596 Interest portion of rentals (A) 10,666 12,354 10,187 10,944 12,414 Net expense 1,718,866 1,641,033 1,612,212 1,590,040 1,524,182 OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 6,647 7,824 4,143 4,756 8,071 Other income/ (expense), net 7,202 14,889 21,995 6,281 21,519 Total other income and deductions 13,849 22,713 26,138 11,037 29,590 EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $ 352,901 $ 417,608 $ 366,351 $ 356,906 $ 279,479 FIXED CHARGES: Interest on funded indebtedness $ 89,648 $ 92,602 $ 93,477 $ 100,246 $ 92,942 Other interest (B) 21,847 16,337 14,726 6,530 4,873 Interest portion of rentals (A) 10,666 12,354 10,187 10,944 12,414 Total fixed charges $ 122,161 $ 121,293 $ 118,390 $ 117,720 $ 110,229 RATIO OF EARNINGS TO FIXED CHARGES 2.89 3.44 3.09 3.03 2.54 Preferred stock dividend requirement 13,072 14,457 14,795 16,810 20,604 Ratio of income before provision for income taxes to net income (C) 147.6% 148.8% 152.3% 151.1% 144.2% Preferred stock dividend requirement on a pretax basis 19,294 21,512 22,529 25,400 29,711 Fixed charges, as above 122,161 121,293 118,390 117,720 110,229 Total fixed charges and preferred stock dividends $ 141,455 $ 142,805 $ 140,919 $ 143,120 $ 139,940 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 2.50 2.92 2.60 2.49 2.00 Exhibit 12-B Page 2 of 2 JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Notes: (A) The Company has included the equivalent of the interest portion of all rentals charged to income as fixed charges for this statement and has excluded such components from Operating Expenses. (B) Includes dividends on company-obligated mandatorily redeemable preferred securities of $10,700 and $6,628 for the years 1996 and 1995, respectively. (C) Represents income before provision for income taxes divided by net income as follows: Twelve Months Ended December 31, 1996 1995 1994 1993 1992 Income before provision for income taxes $230,740 $296,315 $247,961 $239,187 $169,250 Net Income 156,303 199,089 162,841 158,344 117,361 Exhibit 12-C Page 1 of 2 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Twelve Months Ended December 31, 1996 1995 1994 1993 1992 OPERATING REVENUES $910,408 $854,674 $801,303 $801,487 $821,823 OPERATING EXPENSES 733,664 686,183 655,805 624,025 660,497 Interest portion of rentals (A) 5,367 5,186 5,315 4,932 5,817 Net expense 728,297 680,997 650,490 619,093 654,680 OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 1,245 2,430 3,847 2,919 2,858 Other income/ (expense), net 1,220 129,660 (98,953) (5,581) 3 229 Total other income and deductions 2,465 132,090 (95,106) (2,662) 6,087 EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $184,576 $305,767 $ 55,707 $179,732 $173,230 FIXED CHARGES: Interest on funded indebtedness $ 45,373 $ 45,844 $ 43,270 $ 42,887 $ 38,882 Other interest (B) 14,436 14,147 15,137 6,990 6,039 Interest portion of rentals (A) 5,367 5,186 5,315 4,932 5,817 Total fixed charges $ 65,176 $ 65,177 $ 63,722 $ 54,809 $ 50,738 RATIO OF EARNINGS TO FIXED CHARGES 2.83 4.69 0.87 3.28 3.41 Preferred stock dividend requirement 944 944 2,960 6,960 10,289 Ratio of income before provision for income taxes to net income (C) 172.9% 162.0% 174.8% 160.4% 167.6% Preferred stock dividend requirement on a pretax basis 1,632 1,529 5,174 11,164 17,244 Fixed charges, as above 65,176 65,177 63,722 54,809 50,738 Total fixed charges and preferred stock dividends $ 66,808 $ 66,706 $ 68,896 $ 65,973 $ 67,982 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 2.76 4.58 0.81 2.72 2.55 Exhibit 12-C Page 2 of 2 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Notes: (A) The Company has included the equivalent of the interest portion of all rentals charged to income as fixed charges for this statement and has excluded such components from Operating Expenses. (B) Includes dividends on company-obligated mandatorily redeemable preferred securities of $9,000, $9,000 and $3,200 for the years 1996, 1995 and 1994, respectively. (C) Represents income before provision for income taxes divided by net income as follows: Twelve Months Ended December 31, 1996 1995 1994* 1993 1992 Income before provision for income taxes $119,400 $240,590 $ - $124,923 $122,492 Net Income 69,067 148,540 - 77,875 73,077 * For the twelve months ended December 31, 1994, the ratio was based on the composite income tax rate for 1994. Exhibit 12-D Page 1 of 2 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Twelve Months Ended December 31, 1996 1995 1994 1993 1992 OPERATING REVENUES $1,019,645 $981,329 $944,744 $908,280 $896,337 OPERATING EXPENSES 840,288 793,320 776,215 688,587 678,478 Interest portion of rentals (A) 4,490 4,911 3,632 3,406 3,945 Net expense 835,798 788,409 772,583 685,181 674,533 OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 2,780 4,417 3,837 2,261 1,651 Other income/ (expense), net (825) 56,454 (71,287) (7,021) (179) Total other income and deductions 1,955 60,871 (67,450) (4,760) 1,472 EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $185,802 $253,791 $104,711 $218,339 $223,276 FIXED CHARGES: Interest on funded indebtedness $ 49,654 $ 49,875 $ 46,439 $ 44,714 $ 42,615 Other interest (B) 16,300 17,616 11,913 5,255 6,415 Interest portion of rentals (A) 4,490 4,911 3,632 3,406 3,945 Total fixed charges $ 70,444 $ 72,402 $ 61,984 $ 53,375 $ 52,975 RATIO OF EARNINGS TO FIXED CHARGES 2.64 3.51 1.69 4.09 4.21 Preferred stock dividend requirement 1,503 1,544 2,937 4,987 5,664 Ratio of income before provision for income taxes to net income (C) 165.2% 163.4% 134.4% 172.3% 170.7% Preferred stock dividend requirement on a pretax basis 2,483 2,523 3,946 8,594 9,671 Fixed charges, as above 70,444 72,402 61,984 53,375 52,975 Total fixed charges and preferred stock dividends $ 72,927 $ 74,925 $ 65,930 $ 61,969 $ 62,646 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 2.55 3.39 1.59 3.52 3.56 Exhibit 12-D Page 2 of 2 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Notes: (A) The Company has included the equivalent of the interest portion of all rentals charged to income as fixed charges for this statement and has excluded such components from Operating Expenses. (B) Includes dividends on company-obligated mandatorily redeemable preferred securities of $9,188, $9,188 and $4,492 for the years 1996, 1995 and 1994, respectively. (C) Represents income before provision for income taxes divided by net income as follows: Twelve Months Ended December 31, 1996 1995 1994 1993 1992 Income before provision for income taxes $115,358 $181,389 $42,727 $164,964 $170,301 Net Income 69,809 111,010 31,799 95,728 99,744
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES GPU, INC. Page Supplementary Data GPU Energy Companies' Statistics F-3 Selected Financial Data F-4 Quarterly Financial Data F-5 Combined Management's Discussion and Analysis of Financial Condition and Results of Operations F-6 Financial Statements Report of Independent Accountants F-39 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 F-40 Balance Sheets as of December 31, 1996 and 1995 F-41 Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994 F-43 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 F-44 Combined Notes to Consolidated Financial Statements F-45 Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Years 1994-1996 F-100 JERSEY CENTRAL POWER & LIGHT COMPANY Supplementary Data Company Statistics F-101 Selected Financial Data F-102 Quarterly Financial Data F-103 Financial Statements Report of Independent Accountants F-104 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 F-105 Balance Sheets as of December 31, 1996 and 1995 F-106 Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994 F-108 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 F-109 Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Years 1994-1996 F-110 F-1 INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES METROPOLITAN EDISON COMPANY Supplementary Data Company Statistics F-111 Selected Financial Data F-112 Quarterly Financial Data F-113 Financial Statements Report of Independent Accountants F-114 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 F-115 Balance Sheets as of December 31, 1996 and 1995 F-116 Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994 F-118 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 F-119 Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Years 1994-1996 F-120 PENNSYLVANIA ELECTRIC COMPANY Supplementary Data Company Statistics F-121 Selected Financial Data F-122 Quarterly Financial Data F-123 Financial Statements Report of Independent Accountants F-124 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 F-125 Balance Sheets as of December 31, 1996 and 1995 F-126 Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994 F-128 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 F-129 Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Years 1994-1996 F-130 Schedules other than those listed above have been omitted since they are not required, are inapplicable or the required information is presented in the Financial Statements or Notes thereto. F-2 GPU, Inc. and Subsidiary Companies GPU ENERGY COMPANIES' STATISTICS
For The Years Ended December 31, 1996 1995 1994 1993 1992 1991 Capacity at System Peak (in MW): Company owned 6,680 6,637 6,655 6,735 6,718 6,737 Contracted 3,536 3,604 3,416 3,236 3,360 3,045 Total capacity (a) 10,216 10,241 10,071 9,971 10,078 9,782 Hourly Peak Load (in MW): Summer peak 8,497 9,101 8,521 8,533 8,067 8,271 Winter peak 7,756 7,861 7,683 7,167 7,173 7,119 Reserve at system peak (%) 20.2 12.5 18.2 16.9 24.9 18.3 Load factor (%) (b) 64.2 57.5 61.7 60.9 62.3 61.1 Sources of Energy (in thousands of MWH): Coal 18,133 17,500 16,548 16,969 18,123 17,942 Nuclear 11,439 11,582 10,216 10,614 11,449 8,598 Gas, hydro & oil 812 1,019 1,071 575 409 1,187 Net generation 30,384 30,101 27,835 28,158 29,981 27,727 Utility purchases and interchange 8,795 10,297 10,326 11,984 11,931 14,255 Nonutility purchases 11,046 10,712 8,810 8,383 8,070 5,934 Total sources of energy 50,225 51,110 46,971 48,525 49,982 47,916 Company use, line loss, etc (5,777) (5,357) (4,313) (5,166) (4,843) (4,775) Total electric energy sales 44,448 45,753 42,658 43,359 45,139 43,141 Fuel Expense (in millions): Coal $263 $251 $260 $266 $266 $285 Nuclear 70 74 65 66 69 60 Gas & oil 38 38 39 32 21 44 Total $371 $363 $364 $364 $356 $389 Power Purchased and Interchanged (in millions): Utility purchases and interchange $ 267 $ 351 $367 $406 $430 $508 Nonutility purchases 739 671 528 491 471 343 Total $1,006 $1,022 $895 $897 $901 $851 Electric Energy Sales (in thousands of MWH): Residential 15,298 14,802 14,788 14,498 13,725 13,852 Commercial 14,017 13,544 13,301 12,919 12,333 12,336 Industrial 12,093 11,982 11,983 11,699 11,901 12,035 Other 1,105 1,143 1,245 1,221 1,303 1,369 Sales to customers 42,513 41,471 41,317 40,337 39,262 39,592 Sales to other utilities 1,935 4,282 1,341 3,022 5,877 3,549 Total 44,448 45,753 42,658 43,359 45,139 43,141 Operating Revenues (in millions): Residential $1,599 $1,542 $1,503 $1,465 $1,339 $1,341 Commercial 1,324 1,258 1,215 1,169 1,079 1,060 Industrial 803 780 774 755 752 753 Other 71 73 78 89 89 93 Sales to customers 3,797 3,653 3,570 3,478 3,259 3,247 Sales to other utilities 57 101 24 67 127 84 Total electric energy sales 3,854 3,754 3,594 3,545 3,386 3,331 Other revenues 64 51 56 51 48 41 Total $3,918 $3,805 $3,650 $3,596 $ 3,434 $3,372 Price per KWH (in cents): Residential 10.51 10.35 10.18 10.07 9.73 9.67 Commercial 9.47 9.25 9.12 9.04 8.72 8.59 Industrial 6.65 6.51 6.46 6.47 6.32 6.25 Total sales to customers 8.96 8.77 8.64 8.61 8.28 8.20 Total electric energy sales 8.70 8.17 8.43 8.17 7.49 7.72 Kilowatt-hour Sales per Residential Customer 8,741 8,539 8,646 8,575 8,215 8,374 Customers at Year-End (in thousands) 1,997 1,976 1,949 1,925 1,901 1,879 (a) Summer ratings at December 31, 1996 of owned and contracted capacity were 6,606 MW and 3,901 MW, respectively. (b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year. F-3 GPU, Inc. and Subsidiary Companies SELECTED FINANCIAL DATA For The Years Ended December 31, 1996* 1995** 1994*** 1993 1992 1991**** Common Stock Data Earnings per average common share $ 2.47 $ 3.79 $ 1.42 $ 2.65 $ 2.27 $ 2.49 Cash dividends paid per share $ 1.925 $ 1.86 $ 1.775 $ 1.65 $ 1.575 $ 1.45 Book value per share $ 25.21 $ 24.66 $ 22.31 $ 22.69 $ 21.46 $ 20.81 Closing market price per share $ 33 5/8 $ 34 $ 26 1/4 $ 30 7/8 $ 27 5/8 $ 27 1/4 Common shares outstanding (In Thousands): Average 120,743 116,214 115,160 111,779 110,840 110,798 At year-end 120,870 120,619 115,315 115,041 110,857 110,815 Market price to book value at year-end 133% 138% 118% 136% 129% 131% Price/earnings ratio 13.6 9.0 18.5 11.7 12.2 10.9 Return on average common equity 9.8% 16.0% 6.3% 11.9% 10.7% 12.0% Financial Data (In Thousands) Operating revenues $3,918,089 $3,804,656 $3,649,516 $3,596,090 $3,434,153 $3,371,599 Other operation and maintenance expense 1,090,888 963,609 1,076,925 909,786 856,773 891,314 Net income 298,352 440,135 163,688 295,673 251,636 275,882 Net utility plant in service 5,942,354 5,862,390 5,730,962 5,512,057 5,244,039 5,064,254 Total assets 10,941,219 9,849,516 9,209,777 8,829,255 7,730,738 7,408,834 Long-term debt 3,177,016 2,567,898 2,345,417 2,320,384 2,221,617 1,992,499 Long-term obligations under capital leases 6,623 11,696 16,982 23,320 24,094 27,210 Subsidiary-obligated mandatorily redeemable preferred securities 330,000 330,000 205,000 - - - Cumulative preferred stock with mandatory redemption 114,000 134,000 150,000 150,000 150,000 100,000 Capital expenditures: GPU Energy companies 403,880 461,860 585,916 495,517 460,073 467,050 GPU International Group 573,587 164,831 73,835 16,426 747 5,338 Number of employees 9,345 10,286 10,555 11,963 11,969 12,018 * Results for 1996 reflect a decrease in earnings of $74.5 million (after-tax), or $0.62 per share, for costs related to voluntary enhanced retirement programs. ** Results for 1995 reflect the reversal of $104.9 million (after-tax), or $0.91 per share, of certain future TMI-2 retirement costs written off in 1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this increase was a charge to income of $8.4 million (after-tax), or $0.07 per share, of TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. *** Results for 1994 reflect a net decrease in earnings of $164.7 million (after-tax), or $1.43 per share, due to a write- off of certain future TMI-2 retirement costs ($104.9 million, or $0.91 per share); charges for costs related to early retirement programs ($76.1 million, or $0.66 per share); a write-off of Penelec's postretirement benefit costs believed not probable of recovery in rates ($10.6 million, or $0.09 per share); and net interest income from refunds of previously paid federal income taxes related to the tax retirement of TMI-2 ($26.9 million, or $0.23 per share). **** Results for 1991 reflect an increase in earnings of $58.2 million (after-tax), or $0.53 per share, for an accounting change recognizing unbilled revenues and a decrease in earnings of $56.2 million (after-tax), or $0.51 per share, for estimated TMI-2 costs. F-4 GPU, Inc. and Subsidiary Companies QUARTERLY FINANCIAL DATA (UNAUDITED) First Quarter Second Quarter In Thousands Except Per Share Data 1996 1995 1996 1995 Operating revenues $1,022,934 $913,972 $912,254 $864,648 Operating income 161,206 133,660 134,753 126,318 Net income 108,253 75,497 73,625 60,980 Earnings per share .90 .65 .61 .53 Third Quarter Fourth Quarter In Thousands Except Per Share Data 1996* 1995** 1996 1995 Operating revenues $1,058,223 $1,095,082 $924,678 $930,954 Operating income 93,166 184,581 119,154 115,992 Net income 35,821 234,278 80,653 69,380 Earnings per share .29 2.02 .67 .59 * Results for the third quarter of 1996 reflect charges of $74.5 million (after-tax), or $0.62 per share, for costs related to voluntary enhanced retirement programs. ** Results for the third quarter of 1995 reflect the reversal of $104.9 million (after-tax), or $0.91 per share, of certain future TMI-2 retirement costs written off in the second quarter of 1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this increase was a charge to income of $8.4 million (after-tax), or $0.07 per share, of TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. F-5
GPU, Inc. and Subsidiary Companies COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GPU, Inc. (formerly General Public Utilities Corporation) owns all the outstanding common stock of three domestic electric utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). In 1996, the customer service, transmission and distribution operations of these electric utilities began doing business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The generation operations of these three electric utilities are conducted by GPU Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). GPU, Inc. also owns all the common stock of GPU International, Inc. (formerly Energy Initiatives, Inc.), GPU Power, Inc. (formerly EI Power, Inc.) and GPU Electric, Inc. (formerly EI Energy, Inc.). Collectively, these are referred to as the "GPU International Group." Corporate functions are performed by GPU Service, Inc. (GPUS). All of these companies considered together are referred to as "GPU." GPU RESULTS OF OPERATIONS GPU's 1996 earnings were $298.4 million, or $2.47 per share, compared to 1995 earnings of $440.1 million, or $3.79 per share. GPU's return on average common equity was 9.8% in 1996 compared to 16.0% in 1995. Earnings for 1996 would have been $372.9 million, or $3.09 per share, compared to earnings of $343.6 million, or $2.95 per share for 1995, if nonrecurring items are excluded. Excluding these nonrecurring items, return on average common equity for 1996 and 1995 would have been 12.1% and 12.7%, respectively. The earnings increase, on this basis, was due primarily to higher GPU International Group income, mainly resulting from the earnings inclusion of Midlands Electricity plc (Midlands), in which a 50% interest was acquired in 1996. Also affecting the 1996 earnings were lower reserve capacity expense and gains associated with the reacquisition of preferred stock through cash tender offers, which were primarily offset by higher depreciation and other operation and maintenance (O&M) expenses. The 1996 nonrecurring item consisted of a $74.5 million after-tax charge to income, or $0.62 per share, for costs related to voluntary enhanced retirement programs, which were accepted by 840 bargaining and nonbargaining employees, representing about 8% of GPU's total workforce. The 1995 nonrecurring items consisted of the reversal of a $104.9 million after-tax expense, or $0.91 per share, for certain future Three Mile Island Unit 2 (TMI-2) retirement costs written off by Met-Ed and Penelec in 1994. This reversal of expense resulted from a 1995 Pennsylvania Supreme Court decision restoring a 1993 Pennsylvania Public Utility Commission (PaPUC) order allowing Met-Ed to recover such costs from customers. Partially offsetting the effect of this was a charge to income of $8.4 million after-tax, or $0.07 per share, for TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. F-6 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) Earnings in 1995 were $440.1 million, or $3.79 per share, compared to 1994 earnings of $163.7 million, or $1.42 per share. The increase in earnings was due primarily to the effect of 1995 (discussed above) and 1994 nonrecurring items. Excluding these nonrecurring items, earnings for 1995 would have been $343.6 million, or $2.95 per share, compared to 1994 earnings of $328.4 million, or $2.85 per share. Contributing to this increase were higher new customer sales, partially offset by higher depreciation and financing expenses. The 1994 nonrecurring items included the write-off of $104.9 million after-tax, or $0.91 per share (discussed above), of certain future TMI-2 retirement costs. Also in 1994, there was a charge to income of $76.1 million after-tax, or $0.66 per share, for costs related to voluntary enhanced retirement programs; a write-off of $10.6 million after-tax, or $0.09 per share, for certain postretirement benefit (OPEB) costs; and net interest income of $26.9 million after-tax, or $0.23 per share, resulting from refunds of previously paid federal income taxes related to the tax retirement of TMI-2. OPERATING REVENUES: Total revenues increased 3% to $3.9 billion in 1996, after increasing 4.3% to $3.8 billion in 1995. The components of these changes are as follows: (In Millions) 1996 1995 Kilowatt-hour (KWH) revenues (excluding energy portion) $ 24.9 $ 14.7 Energy revenues 67.8 141.6 Other revenues 20.7 (1.2) Increase in revenues $113.4 $155.1 Kilowatt-hour revenues 1996 and 1995 The 1996 and 1995 increases in KWH revenues were due primarily to increased new commercial and residential customer sales, partially offset by lower weather-related sales to residential customers. 1996 KWH Customer Sales by Service Class Residential 36% Commercial 33% Industrial/Other 31% F-7 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) Energy revenues 1996 and 1995 Changes in energy revenues do not affect earnings as they reflect corresponding changes in the energy cost rates billed to customers and expensed. The 1996 increase was due primarily to higher energy cost rates in effect and increased commercial and residential customer sales, partially offset by lower sales to other utilities. Energy revenues in 1995 increased primarily from additional sales to other utilities and higher energy cost rates. Other revenues 1996 and 1995 Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense, such as taxes other than income taxes. However, increased transmission revenues contributed to earnings in 1996. OPERATING EXPENSES: Power purchased and interchanged (PP&I) 1996 and 1995 Generally, changes in the energy component of PP&I expense do not significantly affect earnings since these cost increases are substantially recovered through the GPU Energy companies' energy adjustment clauses. However, lower reserve capacity expense, which is a component of PP&I, contributed to earnings in 1996. Fuel and Deferral of energy costs, net 1996 and 1995 Generally, changes in fuel expense and deferral of energy costs do not affect earnings as they are offset by corresponding changes in energy revenues. However, earnings for 1996 benefitted from a $6.3 million pre-tax performance award earned by JCP&L for the efficient operation of its nuclear generating stations. Other operation and maintenance 1996 The 1996 increase in other O&M expenses was due primarily to a $122.7 million pre-tax charge related to the early retirement programs. Partially offsetting the effect of these was a 1995 write-off of $14.7 million pre-tax, for TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. Greater storm damage and emergency repairs in 1996 also contributed to the increase. F-8 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) 1995 The 1995 decrease in other O&M expenses was due to a $127 million pre-tax charge in 1994 related to early retirement programs. Partially offsetting the effect of these was the 1995 write-off of $14.7 million for TMI-2 monitored storage costs. Depreciation and amortization 1996 The 1996 increase in depreciation and amortization expense was due primarily to additions to plant in service and higher depreciation rates for Met-Ed and Penelec. 1995 The 1995 increase in depreciation and amortization expense was due primarily to additions to plant in service. Taxes, other than income taxes 1996 and 1995 Generally, changes in taxes other than income taxes do not significantly affect earnings as they are substantially recovered in revenues. OTHER INCOME AND DEDUCTIONS: Other income/(expense), net 1996 The 1996 decrease in other income/(expense) was due primarily to the reversal in 1995, of $183.9 million pre-tax, of certain future TMI-2 retirement costs written off in 1994 by Met-Ed and Penelec. This reversal of expense resulted from a 1995 Pennsylvania Supreme Court decision restoring a 1993 PaPUC order allowing Met-Ed to recover such costs from customers. This was partially offset by higher GPU International Group income, due primarily to the inclusion of Midlands' income (see Note 6 to GPU's Consolidated Financial Statements). 1995 The 1995 increase in other income/(expense) was due largely to the reversal of TMI-2 retirement costs written off in 1994. Also, in 1994 Penelec expensed $18.6 million pre-tax for certain OPEB costs believed not probable of recovery in rates. Of this amount, $14.6 million was written off as a result of a PaPUC order disallowing the collection of such costs by a nonaffiliated utility, and $4 million was charged to expense for OPEB costs related to employees who participated in the 1994 early retirement programs. Increased GPU International Group income in 1995, due primarily to gains on the sale of investment securities totaling $11.8 million pre-tax, also contributed to the increase. Partially offsetting these was interest income in 1994 of $59.4 million pre-tax resulting from refunds of previously paid federal income taxes related to the tax retirement of TMI-2. F-9 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) INTEREST CHARGES AND PREFERRED DIVIDENDS: Other interest 1995 The 1995 decrease in other interest was due primarily to the GPU Energy companies recognizing in 1994 interest expense related to the tax retirement of TMI-2. The tax retirement of TMI-2 resulted in a $13.8 million pre-tax charge to interest expense on additional amounts owed for tax years in which depreciation deductions with respect to TMI-2 had been taken. Dividends on subsidiary-obligated mandatorily redeemable preferred securities 1996 and 1995 The 1996 increase was due to JCP&L issuing in May 1995, through a special-purpose finance subsidiary, $125 million stated value of mandatorily redeemable preferred securities. The 1995 increase was due to Met-Ed and Penelec issuing in 1994, through special-purpose finance subsidiaries, $100 million and $105 million, respectively, of these securities. Gain on preferred stock reacquisition 1996 The 1996 increase was due to gains associated with Met-Ed and Penelec reacquiring, through cash tender offers, portions of their preferred stock. JCP&L RESULTS OF OPERATIONS JCP&L's 1996 earnings were $143.2 million, compared to 1995 earnings of $184.6 million. The decrease in earnings was due primarily to a $39.4 million after-tax charge in 1996 for voluntary enhanced retirement programs (includes JCP&L's share of costs allocated from Genco, GPUN and GPUS), which were accepted by 341 bargaining and non-bargaining employees of JCP&L, or about 11.5% of its workforce. JCP&L's return on average common equity was 9.5% in 1996 compared to 13.1% in 1995. Excluding this nonrecurring item, 1996 earnings would have been $182.6 million and return on average common equity, on this basis, would have been 12%. Earnings in 1995 were $184.6 million, compared to 1994 earnings of $148 million. Contributing to this earnings increase were a $30.4 million after- tax charge in 1994 for early retirement programs, lower other O&M expenses, and higher new customer sales, partially offset by lower weather-related sales. Also, in 1994 JCP&L recognized net interest income of $7.4 million after-tax resulting from refunds of previously paid federal income taxes related to the tax retirement of TMI-2. F-10 GPU, Inc. and Subsidiary Companies JCP&L RESULTS OF OPERATIONS (continued) OPERATING REVENUES: Total revenues increased 1.1% to $2.06 billion in 1996, after increasing 4.3% to $2.04 billion in 1995. The components of these changes are as follows: (In Millions) 1996 1995 Kilowatt-hour revenues (excluding energy portion) $ (7.2) $ 11.4 Energy revenues 22.1 72.3 Other revenues 7.1 (0.2) Increase in revenues $ 22.0 $ 83.5 Kilowatt-hour revenues 1996 The 1996 decrease in KWH revenues was due to lower weather-related sales to residential customers, partially offset by new residential and commercial customer sales. 1996 KWH Customer Sales by Service Class Residential 41% Commercial 39% Industrial/Other 20% 1995 The 1995 increase in KWH revenues was due to increases in new residential and commercial customer sales, partially offset by lower weather-related sales. Energy revenues 1996 and 1995 Changes in energy revenues do not affect earnings as they reflect corresponding changes in the energy cost rates billed to customers and expensed. The 1996 increase in energy revenues was due primarily to higher energy cost rates in effect and increased commercial customer sales, partially offset by lower sales to other utilities. The 1995 increase was primarily due to additional sales to other utilities and higher energy cost rates. Other revenues 1996 and 1995 Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense, such as taxes other than income taxes. F-11 GPU, Inc. and Subsidiary Companies JCP&L RESULTS OF OPERATIONS (continued) OPERATING EXPENSES: Power purchased and interchanged 1996 Generally, changes in the energy component of PP&I expense do not significantly affect earnings since these cost increases are substantially recovered through the energy adjustment clause. However, lower reserve capacity expense resulting primarily from reduced purchases from Pennsylvania Power & Light Company contributed to the 1996 earnings. 1995 Earnings in 1995 were negatively affected by higher reserve capacity expense resulting primarily from a Pennsylvania-New Jersey-Maryland Interconnection (PJM Power Pool) prior year adjustment and one-time net charges of $3.6 million pre-tax from another utility. Fuel and Deferral of energy and capacity costs, net 1996 and 1995 Generally, changes in fuel expense and deferral of energy and capacity costs do not affect earnings as they are offset by corresponding changes in energy revenues. However, earnings for 1996 benefitted from a $6.3 million pre-tax performance award earned by JCP&L for the efficient operation of its nuclear generating stations. Other operation and maintenance 1996 The 1996 increase in other O&M expenses was due in part to a $62.9 million pre-tax charge related to the early retirement programs. Payments associated with the use of others' transmission facilities (primarily associated companies) and greater storm damage and emergency repairs also contributed to the increase. 1995 The 1995 decrease in other O&M expenses was due primarily to the effect of a $46.9 million pre-tax charge in 1994 related to early retirement programs and lower 1995 storm damage and emergency repairs. Depreciation and amortization 1996 The 1996 increase in depreciation and amortization expense was due primarily to additions to plant in service, partially offset by lower depreciation rates; and higher regulatory asset amortizations. 1995 The 1995 increase in depreciation and amortization expense was due primarily to additions to plant in service, partially offset by lower regulatory asset amortizations. F-12 GPU, Inc. and Subsidiary Companies JCP&L RESULTS OF OPERATIONS (continued) Taxes, other than income taxes 1996 and 1995 Generally, changes in taxes other than income taxes do not significantly affect earnings as they are substantially recovered in revenues. OTHER INCOME AND DEDUCTIONS: Other income, net 1996 The 1996 decrease in other income was due largely to the write-off of $3 million pre-tax of nonutility generation (NUG) buyout costs related to the Crown/Vista project (see Rate Matters section) and the write-off of obsolete inventory in connection with the retirements of the Werner and Gilbert generating stations. 1995 The 1995 decrease was due to the recognition in 1994 of interest income of $14.7 million pre-tax resulting from refunds of previously paid federal income taxes related to the tax retirement of TMI-2. Partially offsetting the effect of this was a 1994 write-off of $4.2 million pre-tax for a cancelled project. INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES: Interest on long-term debt 1996 The decrease in interest on long-term debt was due to lower interest rates on long-term debt. Dividends on company-obligated mandatorily redeemable preferred securities 1996 and 1995 The 1996 increase was due to JCP&L issuing in May 1995, through a special-purpose finance subsidiary, $125 million stated value of mandatorily redeemable preferred securities. MET-ED RESULTS OF OPERATIONS Met-Ed's 1996 earnings were $71.8 million, compared to 1995 earnings of $147.6 million. The decrease in earnings was due primarily to the effect of 1996 and 1995 nonrecurring items. Met-Ed's return on average common equity was 10.3% in 1996 compared to 23.5% in 1995. F-13 GPU, Inc. and Subsidiary Companies MET-ED RESULTS OF OPERATIONS (continued) Excluding these nonrecurring items, earnings would have been $87.2 million, compared to earnings of $80.5 million for 1995. Return on average common equity for 1996 and 1995, on this basis, would have been 12.4% and 13.4%, respectively. The earnings increase, on this basis, was due to primarily higher customer sales, lower reserve capacity expense and gains associated with the reacquisition of preferred stock. The 1996 nonrecurring item consisted of a charge to income of $15.4 million after-tax for voluntary enhanced retirement programs (includes Met- Ed's share of costs allocated from Genco, GPUN and GPUS), which were accepted by 163 bargaining and non-bargaining employees of Met-Ed, or about 7.5% of its workforce. The 1995 nonrecurring items consisted of the reversal of a $72.8 million after-tax expense, for certain future TMI-2 retirement costs written off in 1994. This reversal of expense resulted from a 1995 Pennsylvania Supreme Court decision restoring a 1993 PaPUC order allowing Met-Ed to recover such costs from customers. Partially offsetting the effect of this was a charge to income of $5.7 million after-tax for TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. Earnings in 1995 were $147.6 million, compared to a net loss of $2.2 million for 1994. The increase in earnings was due primarily to the net effect of 1995 (discussed above) and 1994 nonrecurring items. Excluding these nonrecurring items, earnings for 1995 would have been $80.5 million, compared to 1994 earnings of $77.7 million. Contributing to this increase were higher customer sales and lower other O&M expenses, partially offset by higher depreciation and financing expenses. The 1994 nonrecurring items included the above mentioned TMI-2 write-off of $72.8 million after-tax. Also, in 1994 there was a charge to income of $20.1 million after-tax, for costs related to voluntary enhanced retirement programs; and net interest income of $13 million after-tax resulting from refunds of previously paid federal income taxes related to the tax retirement of TMI-2. OPERATING REVENUES: Total revenues increased 6.5% to $910.4 million in 1996, after increasing 6.7% to $854.7 million in 1995. The components of these changes are as follows: (In Millions) 1996 1995 Kilowatt-hour revenues (excluding energy portion) $ 21.5 $ 4.8 Energy revenues 30.1 46.4 Other revenues 4.1 2.2 Increase in revenues $ 55.7 $ 53.4 F-14 GPU, Inc. and Subsidiary Companies MET-ED RESULTS OF OPERATIONS (continued) Kilowatt-hour revenues 1996 The 1996 increase in KWH revenues was due to increased customer usage, higher weather-related sales to residential customers and an increase in new commercial and residential customer sales. 1996 KWH Customer Sales by Service Class Residential 36% Commercial 27% Industrial/Other 37% 1995 The 1995 increase in KWH revenues was due to an increase in new residential and commercial customer sales and higher industrial customer usage, partially offset by lower weather-related sales. Energy revenues 1996 and 1995 Changes in energy revenues do not affect earnings as they reflect corresponding changes in the energy cost rates billed to customers and expensed. The 1996 increase in energy revenues was due primarily to higher energy cost rates in effect and increased commercial and residential customer sales, partially offset by lower sales to other utilities. The 1995 increase was due to higher energy cost rates and additional sales to other utilities. Other revenues 1996 and 1995 Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense, such as taxes other than income taxes. OPERATING EXPENSES: Power purchased and interchanged 1996 and 1995 Generally, changes in the energy component of PP&I expense do not significantly affect earnings since these cost increases are substantially recovered through the energy adjustment clause. However, lower reserve capacity expense contributed to the 1996 and 1995 earnings. Fuel and Deferral of energy costs, net 1996 and 1995 Generally, changes in fuel expense and deferral of energy costs do not affect earnings as they are offset by corresponding changes in energy revenues. F-15 GPU, Inc. and Subsidiary Companies MET-ED RESULTS OF OPERATIONS (continued) Other operation and maintenance 1996 The 1996 increase in other O&M expenses was due primarily to a $26.2 million pre-tax charge related to the early retirement programs and greater storm damage and emergency repairs. Partially offsetting the effect of these was a 1995 write-off of $10 million pre-tax, for TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. 1995 The 1995 decrease in other O&M expenses was due primarily to a $35.2 million pre-tax charge in 1994 related to early retirement programs. Partially offsetting the effect of this was a 1995 write-off of $10 million pre-tax for TMI-2 monitored storage costs. Depreciation and amortization 1996 The 1996 decrease in depreciation and amortization was due to adjustments in 1995 related to TMI-2 decommissioning. These adjustments more than offset 1996 increases in depreciation expense resulting from additions to plant in service and higher depreciation rates. 1995 The 1995 increase in depreciation and amortization expense was due primarily to additions to plant in service and adjustments for TMI-2 decommissioning. Taxes, other than income taxes 1996 and 1995 Generally, changes in taxes other than income taxes do not significantly affect earnings as they are substantially recovered in revenues. OTHER INCOME AND DEDUCTIONS: Other income/(expense), net 1996 The 1996 decrease in other income/(expense) was due primarily to the reversal in 1995, of $127.6 million pre-tax, of certain future TMI-2 retirement costs written off in 1994. This reversal of expense resulted from a 1995 Pennsylvania Supreme Court decision restoring a 1993 PaPUC order allowing Met-Ed to recover such costs from customers. 1995 The 1995 increase in other income/(expense) was due largely to the reversal of TMI-2 retirement costs written off in 1994. Partially offsetting F-16 GPU, Inc. and Subsidiary Companies MET-ED RESULTS OF OPERATIONS (continued) the effect of this was interest income in 1994 of $29.8 million pre-tax resulting from refunds of previously paid federal income taxes related to the tax retirement of TMI-2. INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES: Dividends on company-obligated mandatorily redeemable preferred securities 1995 The 1995 increase was due to Met-Ed issuing in August 1994, through a special-purpose finance subsidiary, $100 million stated value of mandatorily redeemable preferred securities. Gain on preferred stock reacquisition 1996 The 1996 increase was due to gains associated with Met-Ed reacquiring, through cash tender offers, portions of its preferred stock. PENELEC RESULTS OF OPERATIONS Penelec's 1996 earnings were $73.9 million, compared to 1995 earnings of $109.5 million. The decrease in earnings was due primarily to the effect of 1996 and 1995 nonrecurring items. Penelec's return on average common equity was 10% in 1996 compared to 15.8% in 1995. Excluding these nonrecurring items, earnings would have been $93.6 million compared to earnings of $80.1 million for 1995. Return on average common equity for 1996 and 1995, on this basis, would have been 12.6% and 11.8%, respectively. The earnings increase, on this basis, was due primarily to higher customer sales and gains associated with the reacquisition of preferred stock, which were partially offset by higher depreciation expense. The 1996 nonrecurring item consisted of a charge to income of $19.7 million after-tax for voluntary enhanced retirement programs (includes Penelec's share of costs allocated from Genco, GPUN and GPUS), which were accepted by 165 bargaining and non-bargaining employees of Penelec or about 7.5% of its workforce. The 1995 nonrecurring items consisted of the reversal of a $32.1 million after-tax expense, for certain future TMI-2 retirement costs written off in 1994. This reversal of expense resulted from a 1995 Pennsylvania Supreme Court decision restoring a 1993 PaPUC order allowing an affiliate (Met-Ed) to recover such costs from customers. Partially offsetting the effect of this was a charge to income of $2.7 million after-tax for TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. F-17 GPU, Inc. and Subsidiary Companies PENELEC RESULTS OF OPERATIONS (continued) Earnings in 1995 were $109.5 million, compared to 1994 earnings of $28.9 million. The increase in earnings was due primarily to the net effect of 1995 (discussed above) and 1994 nonrecurring items. Excluding these nonrecurring items, earnings for 1995 would have been $80.1 million, compared to 1994 earnings of $90.7 million. Contributing to this earnings decrease were higher other O&M expenses and increased financing expenses. The 1994 nonrecurring items included the above mentioned TMI-2 write-off of $32.1 million after-tax. Also in 1994, there was a charge to income of $25.6 million after-tax, for costs related to voluntary enhanced retirement programs; a write-off of $10.6 million after-tax for certain OPEB costs; and net interest income of $6.5 million after-tax resulting from refunds of previously paid federal income taxes related to the tax retirement of TMI-2. OPERATING REVENUES: Total revenues increased 3.9% to $1 billion in 1996, after increasing 3.9% to $981.3 million in 1995. The components of these changes are as follows: (In Millions) 1996 1995 Kilowatt-hour revenues (excluding energy portion) $ 7.5 $ 1.7 Energy revenues 14.7 32.3 Other revenues 16.1 2.6 Increase in revenues $ 38.3 $ 36.6 Kilowatt-hour revenues 1996 and 1995 The 1996 and 1995 increases in KWH revenues were due primarily to increased new commercial and residential customer sales. Higher weather- related sales to residential customers also contributed to the 1996 increase. 1996 KWH Customer Sales by Service Class Residential 29% Commercial 31% Industrial 34% Other 6% Energy revenues 1996 and 1995 Changes in energy revenues do not affect earnings as they reflect corresponding changes in the energy cost rates billed to customers and expensed. The 1996 increase in energy revenues was due primarily to higher energy cost rates in effect and increased commercial and residential customer F-18 GPU, Inc. and Subsidiary Companies PENELEC RESULTS OF OPERATIONS (continued) sales, partially offset by lower sales to other utilities. The 1995 increase was due primarily to additional sales to other utilities and higher energy cost rates. Other revenues 1996 and 1995 Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense, such as taxes other than income taxes. However, increased transmission revenues contributed to earnings in 1996. OPERATING EXPENSES: Power purchased and interchanged 1996 and 1995 Generally, changes in the energy component of PP&I expense do not significantly affect earnings since these cost increases are substantially recovered through the energy adjustment clause. Fuel and Deferral of energy costs, net 1996 and 1995 Generally, changes in fuel expense and deferral of energy costs do not affect earnings as they are offset by corresponding changes in energy revenues. Other operation and maintenance 1996 The 1996 increase in other O&M expenses was due to a $33.6 million pre-tax charge related to the early retirement programs. Partially offsetting the effect of this was a 1995 write-off of $4.7 million pre-tax, for TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. 1995 The 1995 decrease in other O&M expenses was due to a $44.9 million pre-tax charge in 1994 related to early retirement programs. Partially offsetting the effect of this were a 1995 write-off of $4.7 million pre-tax for TMI-2 monitored storage costs, and employee severance payments associated with the management combination with Met-Ed in 1995. Depreciation and amortization 1996 and 1995 The 1996 increase in depreciation and amortization expense was due to additions to plant in service and higher depreciation rates. The 1995 increase was due primarily to additions to plant in service. F-19 GPU, Inc. and Subsidiary Companies PENELEC RESULTS OF OPERATIONS (continued) Taxes, other than income taxes 1996 and 1995 Generally, changes in taxes other than income taxes do not significantly affect earnings as they are substantially recovered in revenues. OTHER INCOME AND DEDUCTIONS: Other income/(expense), net 1996 The 1996 decrease in other income/(expense) was due primarily to the reversal in 1995, of $56.3 million pre-tax, of certain future TMI-2 retirement costs written off in 1994. This reversal of expense resulted from a 1995 Pennsylvania Supreme Court decision restoring a 1993 PaPUC order allowing an affiliate to recover such costs from customers. Partially offsetting this was a write-off in 1995 of $2.5 million of deferred OPEB costs related to wholesale customers which were deemed not recoverable through ratemaking. 1995 The 1995 increase in other income/(expense) was due largely to the reversal of TMI-2 retirement costs of $56.3 million pre-tax written off in 1994. In 1994, Penelec expensed $18.6 million pre-tax for certain OPEB costs believed not probable of recovery in rates. Of this amount, $14.6 million was written off as a result of a PaPUC order disallowing a nonaffiliated utility to collect such costs, and $4 million was charged to expense for OPEB costs related to employees who participated in the early retirement programs. Also, Penelec recorded interest income of $14.9 million pre-tax resulting from refunds of previously paid federal income taxes related to the tax retirement of TMI-2. INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES: Dividends on company-obligated mandatorily redeemable preferred securities 1995 The 1995 increase was due to Penelec issuing in July 1994, through a special-purpose finance subsidiary, $105 million stated value of mandatorily redeemable preferred securities. Gain on preferred stock reacquisition 1996 The 1996 increase was due to gains associated with Penelec reacquiring, through cash tender offers, portions of its preferred stock. F-20 GPU, Inc. and Subsidiary Companies The following sections of Management's Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements made that are not historical facts are forward-looking and, accordingly, involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Although such forward-looking statements have been based on reasonable assumptions, there is no assurance that the expected results will be achieved. Some of the factors that could cause actual results to differ materially include, but are not limited to: the effects of regulatory decisions; changes in law and other governmental actions and initiatives; the impact of deregulation and increased competition in the industry; industry restructuring; expected outcomes of legal proceedings; generating plant performance; fuel prices and availability; and uncertainties involved with foreign operations including political risks and foreign currency fluctuations. GPU INTERNATIONAL GROUP The GPU International Group develops, owns and operates electric generation, transmission and distribution facilities and supply businesses in the U.S. and foreign countries. It has also made investments in certain advanced technologies related to the electric power industry. The GPU International Group has ownership interests in distribution and supply businesses in England and Australia, ten operating cogeneration plants in the U.S. totaling 895 MW (of which the GPU International Group's equity interest represents 261 MW) of capacity, and eleven operating generating facilities located in foreign countries totaling 2,686 MW (of which the GPU International Group's equity interest represents 546 MW) of capacity. The GPU International Group is continuing to pursue investment opportunities and has commitments, both domestically and internationally, in five generating facilities under construction totaling 3,172 MW (of which the GPU International Group's equity interest represents 816 MW) of capacity. At December 31, 1996, GPU, Inc.'s aggregate investment in the GPU International Group was $211 million; GPU, Inc. has also guaranteed up to an additional $893 million of GPU International Group obligations. GPU, Inc. has Securities and Exchange Commission (SEC) approval to finance investments in foreign utility companies and exempt wholesale generators up to an aggregate amount equal to 50% of GPU's average consolidated retained earnings, or approximately $1 billion. At December 31, 1996, GPU, Inc. had remaining authorization to finance an additional $25 million of such investments. A request to increase this limit to 100% of GPU's average consolidated retained earnings, or to approximately $2 billion at December 31, 1996, is pending. Selected financial data for the GPU International Group is as follows: F-21 GPU, Inc. and Subsidiary Companies (In Millions) 1996 1995 1994 Total assets $1,075 $380 $130 Liabilities and capital: Common equity $ 232 $209 $118 Long-term debt 752 104 - Notes payable - 2 - Total capitalization 984 315 118 Minority interest 43 41 - Other liabilities 48 24 12 Total liabilities and capital $1,075 $380 $130 Purchase of investments $ 574 $165 $ 74 Net income/(loss) $ 24 $ 9 $ (3) For additional information on the GPU International Group's investments, see Note 7 to GPU's Consolidated Financial Statements. In 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners Holdings (Holdings), a 50/50 joint venture, to acquire Midlands (see Note 6 to GPU's Consolidated Financial Statements), an English regional electric company. A wholly-owned subsidiary of Holdings purchased the outstanding shares of Midlands through a cash tender offer of 1.7 billion pounds, or approximately U.S. $2.6 billion. GPU's 50% interest in Holdings is held by EI UK Holdings, Inc. (EI UK), a wholly-owned subsidiary of GPU Electric. The Labour Party in the United Kingdom has proposed a windfall tax on privatized utilities and other companies as part of its election campaign platform. General elections in the United Kingdom are required to be held no later than May 1997. If the Labour Party wins the general election, and the tax is enacted as currently proposed, a charge to Midlands' earnings, which is estimated to range from $110 million to $350 million (GPU's 50% share being $55 million to $175 million), would be recorded in 1997, perhaps as early as the second quarter. Due to the fact that (1) the Labour Party may not win the election; (2) the windfall tax may not be enacted as currently proposed; (3) the amount of the proposed tax may change; and (4) the Labour Party may change its current platform, there is no certainty that this tax, if levied, would be enacted as currently proposed. With the acquisitions of Midlands in 1996 and Solaris Power in 1995, the GPU International Group now has 50% ownership interests in foreign utility companies having total fixed assets of approximately $1.6 billion. These foreign utility companies annually provide about 20 billion kilowatt-hours of electricity to 2.2 million customers in England and 240,000 customers in Australia, with operating revenues of $2.5 billion in 1996. In 1996, GPU Power, through a wholly-owned subsidiary, purchased the rights to acquire up to a 40% interest in a venture which plans to construct a 300 MW coal generating plant in the Philippines. GPU Power's equity contribution is expected to be approximately $40 million. F-22 GPU, Inc. and Subsidiary Companies In 1996, GPU International and Ballard Power Systems of Canada agreed to a business venture to develop, manufacture and market stationary fuel cell power plants worldwide. Under the agreement, GPU International will invest approximately $23 million for up to a 19.3% equity interest in the new venture, of which $6 million was invested as of December 31, 1996. Management expects that the GPU International Group will provide a substantial portion of GPU's future earnings growth and intends on making additional investments in its business activities. The timing and amounts of these investments, however, will depend upon the availability of appropriate opportunities and financing capabilities. LIQUIDITY AND CAPITAL RESOURCES Capital Needs The GPU Energy companies' capital needs were $535 million (JCP&L $235 million; Met-Ed $92 million; Penelec $190 million; Other $18 million) in 1996, consisting of cash construction expenditures of $404 million (JCP&L $200 million; Met-Ed $77 million; Penelec $115 million; Other $12 million) and amounts for maturing obligations of $131 million (JCP&L $35 million; Met-Ed $15 million; Penelec $75 million; Other $6 million). In addition, the GPU International Group made investments in 1996 totaling $574 million, due primarily to the acquisition of Midlands (see Note 6 to GPU's Consolidated Financial Statements). During 1996, construction expenditures were used primarily for new customer connections and to maintain and improve existing transmission and distribution facilities. In 1997, construction expenditures for the GPU Energy companies are estimated to be $402 million (JCP&L $185 million; Met-Ed $90 million; Penelec $120 million; Other $7 million), consisting primarily of $391 million (JCP&L $179 million; Met-Ed $88 million; Penelec $117 million; Other $7 million) for ongoing system development. Expenditures for maturing obligations will total $179 million (JCP&L $110 million; Met-Ed $40 million; Penelec $26 million; Other $3 million) in 1997, and $139 million (JCP&L $12 million; Penelec $30 million; Other $97 million) in 1998. Management estimates that a substantial portion of GPU's and the GPU Energy companies' 1997 capital needs will be satisfied through internally generated funds. Cash Construction Expenditures (In millions of dollars) 1992 1993 1994 1995 1996 1997* GPU $460 $496 $586 $462 $404 $402 JCP&L $219 $197 $244 $218 $200 $185 Met-Ed 131 142 160 113 77 90 Penelec 110 150 174 131 115 120 Other - 7 8 - 12 7 * Estimate The GPU Energy companies' capital leases are primarily for nuclear fuel. F-23 GPU, Inc. and Subsidiary Companies Nuclear fuel capital leases at December 31, 1996 totaled $139 million (JCP&L $95 million; Met-Ed $29 million; Penelec $15 million). When consumed, portions of the presently leased material will be replaced by additional leased material at an average annual rate (which is based on two full operating cycles, or four years) of between $35 million and $50 million (JCP&L $20 million - $25 million; Met-Ed $10 million - $15 million; Penelec $5 million - $10 million). In the event the needed nuclear fuel cannot be leased, the associated capital requirements would have to be met by other means. Financing GPU, Inc. has received SEC approval to issue and sell up to $300 million of unsecured debentures through December 31, 2001 and up to seven million shares of additional common stock through 1998. GPU, Inc. has no current plans to issue these securities. Any sale of such securities will, among other things, depend upon future capital requirements and market conditions. As a result of Pennsylvania legislation (see Competitive Environment section), Met-Ed and Penelec each plan to sell securitized transition bonds through a separate trust or other similar entity, and would use the proceeds to reduce capitalization and further mitigate stranded costs resulting from customer choice. The timing and amount of any sale will depend upon PaPUC approval of restructuring plans, as well as market conditions. The GPU Energy companies have regulatory authority to issue and sell first mortgage bonds (FMBs), including secured medium-term notes, and preferred stock through various periods into 1997. JCP&L and Penelec intend to seek regulatory approval to extend such authorizations through June 1999. Under existing authorizations, JCP&L, Met-Ed and Penelec may issue these senior securities in aggregate amounts of $145 million, $190 million and $120 million, respectively, of which up to $100 million for each company may consist of preferred stock. The GPU Energy companies also have regulatory authority to incur short-term debt, a portion of which may be through the issuance of commercial paper. In 1996, the GPU Energy companies issued an aggregate of $120 million (JCP&L $80 million; Penelec $40 million) principal amount of FMBs. The proceeds from these issuances were used to repay short-term debt and for other corporate purposes. The GPU Energy companies redeemed $115.7 million (JCP&L $25.7 million; Met-Ed $15 million; Penelec $75 million) principal amount of FMBs with 1996 maturities. Also in 1996, JCP&L redeemed $20 million stated value of cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. In December 1996, Met-Ed and Penelec repurchased an aggregate of $11.4 million stated value and $20 million stated value, respectively, of cumulative preferred stock, through cash tender offers, at a total cost of approximately $7.7 million and $14.4 million, respectively. In January 1997, JCP&L redeemed an aggregate of $54.2 million principal amount of FMBs, of which $24.2 million were redeemed prior to maturity. F-24 GPU, Inc. and Subsidiary Companies The GPU Energy companies' bond indentures and articles of incorporation include provisions that limit the amount of long-term debt, preferred stock and short-term debt the companies may issue. The GPU Energy companies' interest and preferred dividend coverage ratios are currently in excess of indenture and charter restrictions. The amount of FMBs that the GPU Energy companies could issue based on the bondable value of property additions is in excess of amounts currently authorized. GPU's cost of capital and ability to obtain external financing are affected by its security ratings, which are periodically reviewed by the credit rating agencies. The GPU Energy companies' FMBs are currently rated at an equivalent of "BBB+" or higher by the major credit rating agencies, while the preferred stock and mandatorily redeemable preferred securities have been assigned an equivalent of "BBB" or higher. In addition, the GPU Energy companies' commercial paper is rated as having good to high credit quality. The Standard & Poor's (S&P) rating outlook is used to assess the potential direction of an issuer's long-term debt rating over the intermediate to longer-term. The rating outlook for the GPU Energy companies remained constant in 1996. Met-Ed's "positive" rating outlook reflects expectations of steady financial improvement based on economic growth, the successful buyout of expensive NUG contracts, and continued strong nuclear operations. JCP&L's and Penelec's "stable" rating outlooks reflect manageable construction programs, minimal rate relief requirements and expectations of modest strengthening in the service area economies. The S&P business position is a financial benchmarking standard for rating the debt of electric utilities to reflect the changing risk profiles resulting primarily from the intensifying competitive pressures in the industry. The business position currently assigned to the GPU Energy companies is "low average" to "average"; in 1996, the business position for Met-Ed was raised to "average." Present plans call for the GPU Energy companies to issue long-term debt during the next three years to finance construction activities, fund the redemption of maturing senior securities, and depending on interest rates, refinance outstanding senior securities. In addition, further significant investments by the GPU International Group, or otherwise, may require GPU, Inc. to issue additional debt and/or common stock (see GPU International Group section for a discussion of GPU, Inc.'s remaining investment authorization). In 1996, GPU Electric, through its wholly-owned subsidiary EI UK, entered into a five-year term loan agreement with a syndicate of banks which provides for borrowings of up to 350 million pounds. As of December 31, 1996, EI UK had aggregate borrowings outstanding under the GPU, Inc. guaranteed term loan of 342 million pounds, or approximately U.S. $586 million. The proceeds from these borrowings were used by EI UK to fund the acquisition of Midlands. Also in 1996, GPU International, through a wholly-owned subsidiary, completed nonrecourse construction financing for its 300 MW Mid-Georgia project. As of December 31, 1996, GPU International had aggregate borrowings outstanding for the construction of this project of $62 million, of which $22 million is guaranteed by GPU, Inc. F-25 GPU, Inc. and Subsidiary Companies Capitalization GPU's target capitalization ratios are designed to provide credit quality ratings that permit capital market access at reasonable costs. The targets and actual capitalization ratios are as follows: GPU Target Range 1996 1995 1994 Common equity 45-48% 43% 47% 44% Preferred equity 7-9 7 9 8 Notes payable and long-term debt 48-43 50 44 48 100% 100% 100% 100% JCP&L Target Range 1996 1995 1994 Common equity 48-51% 48% 49% 47% Preferred equity 8-10 9 10 7 Notes payable and long-term debt 44-39 43 41 46 100% 100% 100% 100% Met-Ed Target Range 1996 1995 1994 Common equity 47-50% 48% 47% 46% Preferred equity 8-10 8 9 10 Notes payable and long-term debt 45-40 44 44 44 100% 100% 100% 100% Penelec Target Range 1996 1995 1994 Common equity 45-48% 45% 45% 43% Preferred equity 8-10 7 9 9 Notes payable and long-term debt 47-42 48 46 48 100% 100% 100% 100% In 1996, the quarterly dividend on GPU, Inc.'s common stock was increased by 3.2% to an annualized rate of $1.94 per share. GPU, Inc.'s payout rate in 1996 was 62% of earnings (excluding the nonrecurring items). Management will continue to review GPU, Inc.'s dividend policy to determine how to best serve the long-term interests of shareholders. COMPETITIVE ENVIRONMENT The GPU Energy companies estimate that their total potential above market costs relating to power purchase commitments, above market generation costs, generating plant decommissioning costs and regulatory assets at year end 1998, on a present value basis, could range from $4.5 billion to $8 billion (JCP&L $2.5 billion to $4 billion; Met-Ed $1 billion to $2 billion; Penelec $1 billion to $2 billion). The estimate is subject to significant uncertainties including the future market price of both electricity and other competitive F-26 GPU, Inc. and Subsidiary Companies energy sources, as well as the timing of when these above market costs become stranded due to customers choosing another supplier. As discussed below, both the restructuring legislation in Pennsylvania and the proposed restructuring plan in New Jersey provide mechanisms for utilities to recover, subject to regulatory approval, their above market costs. These regulatory recovery mechanisms in Pennsylvania and New Jersey will differ, but should allow for the recovery of non-mitigable above market costs through either distribution charges or separate nonbypassable charges to customers. Recent Regulatory Actions Since the enactment of the federal Public Utility Regulatory Policies Act of 1978 (PURPA), market forces combined with state and federal actions have led to increased competition in the electric utility industry. During 1996, state and federal actions continued to move the electric utility industry in this direction. In 1996, Pennsylvania adopted comprehensive legislation which provides for the restructuring of the electric utility industry. The legislation, among other things, permits one-third of Pennsylvania retail consumers to choose their electric supplier beginning January 1, 1999, and all retail consumers by January 1, 2001. The legislation requires the unbundling of rates for transmission, distribution and generation services. Utilities would have the opportunity to recover up to 100% of their prudently incurred stranded costs that result from customers choosing another supplier through a PaPUC approved competitive transition charge, subject to certain conditions, including that they attempt to mitigate these costs. For a discussion of stranded costs, see the Competition and the Changing Regulatory Environment section of Note 14 to GPU's Consolidated Financial Statements. The legislation provides utilities the opportunity to reduce their stranded costs through the issuance of transition bonds with maturities of up to 10 years. The sale proceeds could be used to buy out or buy down uneconomic NUG contracts, to reduce capitalization, or both. Principal and interest payments on the bonds would be paid by all distribution service customers through a nonbypassable intangible transition charge. Reduced financing costs associated with the sale of transition bonds would be used to provide rate reductions for all customers. Pennsylvania electric utilities are required to submit restructuring plans to the PaPUC between April 1, 1997 and September 30, 1997. Met-Ed and Penelec are scheduled to file their respective plans with the PaPUC on June 1, 1997. The PaPUC is required to conduct public hearings prior to its approval of these plans. Effective January 1, 1997, transmission and distribution rates charged to Pennsylvania retail customers are generally capped for 4 1/2 years, and generation rates are generally capped for up to nine years. Transmission and distribution of electricity will continue as a regulated monopoly and the PaPUC will ensure that adequate electrical reserves exist to maintain reliable service. An independent system operator (ISO) will be responsible for coordinating the generation and transmission of electricity in an efficient and nondiscriminatory manner. F-27 GPU, Inc. and Subsidiary Companies As part of this restructuring, Met-Ed and Penelec filed, in December 1996, tariff supplements with the PaPUC requesting approval to, among other things, include their currently effective energy cost rates (ECR) and state tax adjustment surcharges (STAS) in base rates, effective for all bills rendered after January 1, 1997. The PaPUC has issued a tentative order approving this request. Since rates that can be charged to customers for generation are capped for up to nine years, Met-Ed's and Penelec's future earnings will be subject to market volatility. Increases or decreases in fuel costs will no longer be subject to deferred accounting and will be reflected in net income as incurred. Met-Ed and Penelec will continue their efforts to manage fuel costs and will mitigate, to the extent possible, any excessive risks. As a result of including their ECRs in base rates and the cessation of deferred energy accounting, both effective January 1, 1997, Met-Ed and Penelec will experience step increases in reported revenues totaling approximately $25 million (Met-Ed $10 million; Penelec $15 million) in the first quarter of 1997. The PaPUC has also issued a final order that sets forth the guidelines for retail access pilot programs in Pennsylvania. These pilot programs shall include residential, commercial and industrial class customers, and utilities are required to commit about 5% of load to retail access programs and unbundle their rates to allow customers to choose their electric generation supplier. Met-Ed and Penelec expect to file with the PaPUC in the first quarter of 1997 their plan for a proposed pilot program that would offer certain customers choice of their electric generation supplier. In January 1997, the New Jersey Board of Public Utilities (NJBPU) released Phase II of the New Jersey Energy Master Plan which recommends, among other things, that certain electric retail customers be permitted to choose their supplier beginning October 1998, expanding to include all retail customers by April 2001. The NJBPU also recommends a near-term electric rate reduction of 5% to 10% with the phase in of retail competition, and combined with the effects of separate proposed modifications to the state's energy tax policy, an aggregate rate reduction of at least 10% to 15% over time. The NJBPU proposes in this report that utilities have an opportunity to recover their stranded costs associated with generating capacity commitments provided that they attempt to mitigate these costs. Also, NUG contracts which cannot be mitigated will be eligible for stranded cost recovery. The determination of stranded cost recovery by the NJBPU would be undertaken on a case-by-case basis, with no guarantee for full recovery of these costs. A separate market transition charge (MTC) would be established for each utility to allow utilities to recover stranded costs over 4 to 8 years. The MTC would be capped to ensure that customers experience the NJBPU's recommended overall rate reduction of 5% to 10%. New Jersey is also considering securitization as a mechanism to help mitigate stranded costs. In addition, the NJBPU is proposing that beginning October 1998, utilities unbundle their rates to allow customers to choose their electric generation supplier. Transmission and distribution of electricity would continue as a regulated monopoly and utilities would be responsible for connecting customers to the system and for providing distribution service. Transmission service would be provided by an ISO, who would be responsible for F-28 GPU, Inc. and Subsidiary Companies maintaining the reliability of the regional power grid and would be regulated by the Federal Energy Regulatory Commission (FERC). The NJBPU intends to issue its final findings and recommendations to the Governor and the Legislature for their consideration in March 1997. The NJBPU proposes requiring electric utilities in New Jersey to file for review, by no later than July 15, 1997, complete restructuring plans, stranded cost filings and unbundled rate filings. The NJBPU intends to complete its review of these filings by October 1998. JCP&L is awaiting NJBPU approval of a plan to establish a one-year pilot program offering customers in Monroe Township, New Jersey a choice of their electric energy supplier. At the end of the first year, Monroe Township will have the option of renewing the pilot. Monroe Township had been exploring the possibility of establishing its own municipal electric system. In 1996, FERC issued Order 888, which requires utilities to provide open access to their transmission network, thereby encouraging a fully competitive wholesale electric power market. It also requires electric utilities to, among other things: (1) file nondiscriminatory open access transmission tariffs which would be available to all wholesale sellers and buyers of electricity; (2) accept service under these new tariffs for their own wholesale transactions; and (3) be permitted to recover their legitimate and verifiable stranded costs incurred when a wholesale customer purchases power from another supplier using the utility's transmission system. While it does not require corporate unbundling, which the FERC defines as the disposing of ancillary services or creating separate affiliates to manage transmission services, Order 888 does call for functional unbundling of transmission and ancillary services. In July 1996, the GPU Energy companies filed pro forma tariffs in accordance with Order 888. These tariffs became effective on July 9, 1996. In 1996, the GPU Energy companies, along with six other electric utility members of the PJM Power Pool (together, the supporting PJM companies), filed with the FERC a transmission tariff and agreements that would create a new wholesale energy market to meet the requirements of Order 888, and to increase competition in the Mid-Atlantic region. The Mid-Atlantic energy agreements include: (1) the requirements and standards under which an ISO will operate the energy market and transmission system; (2) a transmission owners agreement and tariff that provides pool-wide transmission service with ten zones, each reflecting an existing PJM company's transmission costs, and an average transmission rate for service across or out of the power pool; (3) establishment of a Mid-Atlantic spot energy market; and (4) requiring the ownership of, or contracting for, sufficient transmission and generation capacity, including the sharing of generating capacity reserves, to meet reliability requirements. The proposed PJM tariff and agreements would supersede the tariffs filed by the GPU Energy companies in July 1996. PECO Energy Company (PECO), which opposes the supporting PJM companies' proposed restructuring plan, has filed its own plan with the FERC. A number of parties, including PECO, have intervened in this proceeding. Among other things, the interveners contend that the proposal would leave F-29 GPU, Inc. and Subsidiary Companies excessive control of the transmission system to the PJM member utilities and that the plan's ten zone transmission pricing is anticompetitive and preserves utility market power. In a November 1996 order the FERC directed the PJM companies to develop a new ISO proposal. According to the FERC, the proposals failed to satisfy Order 888, particularly the requirement that ISOs be independent. Among other things, the FERC noted that all stakeholders should participate in the formation of an ISO, no party should exercise undue influence on its board of directors, and no administrative oversight committee should control the actions of the ISO, which should be able to develop its own operating procedures. In December 1996, the PJM companies, including PECO, submitted to the FERC a joint filing they believe is in compliance with Order 888. The joint filing represents an interim solution and contains several unresolved issues for which alternate proposals were presented to the FERC for resolution. The joint filing includes a pool-wide pro forma tariff and amendments to the PJM Interconnection Agreement to modify membership and governance provisions. As part of the joint compliance filing, the supporting PJM companies and PECO filed separate briefs supporting their positions on a number of other unresolved issues involving PJM restructuring, principally concerning transmission tariff design and congestion pricing. The PJM companies hope to reach consensus among themselves and with other stakeholders on all the issues and file a new pro forma tariff and other agreements by no later than May 31, 1997. In January 1997, legislation was introduced in Congress which provides for a comprehensive restructuring of the electric utility industry, including, retail choice for all utility customers beginning December 2003, the opportunity for utilities to recover their prudently incurred stranded costs, and repeal of both PURPA and the Public Utility Holding Company Act. It is expected that other similar proposed legislation will be introduced in Congress during 1997. Managing the Transition As competition in the electric utility industry increases, the price of electricity and quality of customer services will be critical. GPU has been active both on the federal and state levels in helping to shape electric industry restructuring while protecting the interests of its shareholders and customers, and is attempting to assess the impact that these competitive pressures and other changes will have on its financial condition and results of operations. GPU has identified the following strategic objectives to guide it over the next several years: (1) strengthen and expand the distribution business; (2) maximize existing generation asset values consistent with competitive market economics; (3) internally and externally position GPU for industry deregulation and restructuring; and (4) seek earnings growth from new core- related business initiatives, including making investments in the GPU International Group. F-30 GPU, Inc. and Subsidiary Companies As part of its strategic planning, GPU is continuing to investigate investment opportunities in various domestic and foreign power projects and foreign utility systems, and intends on making additional investments which would be financed with new debt or equity (see GPU International Group section for a discussion of GPU, Inc.'s remaining investment authorization). GPU believes it can achieve earnings growth by making these kinds of investments and also gain operating experience in businesses that are already operating in a competitive environment. While GPU recognizes that there are risks inherent in making these investments and that investment risk cannot be mitigated entirely, GPU believes the best long-term approach to managing these risks is through portfolio diversification. GPU's diversification policy is to reduce its overall investment risk by: (1) investing in diverse electric businesses; (2) achieving a balance between new development and construction of electric facilities, and acquisitions of assets already in operation (thereby producing near-term earnings without significant development or construction risk); and (3) investing in diverse geographic regions. In 1996, 493 bargaining employees (JCP&L 265; Met-Ed 90; Penelec 133; Other 5) and 347 nonbargaining employees (JCP&L 76; Met-Ed 73; Penelec 32; Other 166) accepted voluntary enhanced retirement programs, resulting in an 8% reduction in GPU's total workforce and a third quarter pre-tax charge to earnings of $122.7 million (JCP&L $62.9 million; Met-Ed $26.2 million; Penelec $33.6 million). GPU funded the cost of these retirement programs in 1996. In response to competitive forces and regulatory changes, GPU has from time to time considered, and expects to continue to consider, various strategies designed to enhance its competitive position and to increase its ability to adapt to, and anticipate changes in, its business. GPU is aware that a number of nonaffiliated utilities in the Northeast and in California are in the process of selling some or all of their generation assets in response to regulatory and competitive pressures. The GPU Energy companies are continually evaluating the future financial viability of their nuclear and fossil generation assets and will retire or otherwise attempt to dispose of plants that become uneconomical. In 1996, JCP&L retired its 58 MW Werner Unit 4 and 72 MW Gilbert Unit 3 generating plants because of high operating costs. See the Rate Matters section regarding the recovery of JCP&L's remaining investment in these plants. GPU's strategies may include business combinations with other companies, internal restructurings involving the complete or partial separation of its wholesale and retail businesses, acquisitions of other businesses, and additions to or dispositions of all or portions of its generation, transmission or distribution businesses. As a result of federal and state actions noted above, the GPU Energy companies will be required to implement rate unbundling for generation, transmission and distribution services. No assurances can be given as to whether any potential transaction of the type described above may actually occur, or as to the ultimate effect thereof on the financial condition or competitive position of GPU. F-31 GPU, Inc. and Subsidiary Companies Nonutility Generation Agreements Pursuant to the requirements of PURPA and state regulatory directives, the GPU Energy companies have entered into power purchase agreements with NUGs for the purchase of energy and capacity for periods of up to 26 years (JCP&L 25 years; Met-Ed 26 years; Penelec 25 years). Although a few of these facilities are dispatchable, most are must-run and generally obligate the GPU Energy companies to purchase, at the contract price, the output up to the contract limits. While the GPU Energy companies thus far have been granted recovery of their NUG costs from customers by the PaPUC and NJBPU, there can be no assurance that they will continue to be able to recover these costs throughout the terms of the related agreements. As of December 31, 1996, facilities covered by these agreements having 1,631 MW (JCP&L 891 MW; Met-Ed 340 MW; Penelec 400 MW) of capacity were in service. Due to the current availability of excess capacity in the marketplace, the cost of near- to intermediate-term (i.e., one to four years) energy supply from generation facilities now in service is currently and is expected to continue to be priced below the costs of new supply sources, at least for some time. The projected cost of energy from new generation supply sources has also decreased due to improvements in power plant technologies and lower forecasted fuel prices. The GPU Energy companies intend to avoid, to the maximum extent practicable, entering into any new NUG agreements that are not needed or not consistent with current market pricing and continue to support legislative efforts to repeal PURPA. They are also attempting to renegotiate, and in some cases buy out, existing high cost long-term NUG agreements (see Managing Nonutility Generation section). RATE MATTERS Pennsylvania adopted comprehensive legislation in 1996 which provides for the restructuring of the electric utility industry. For additional information and related rate matters, see the Competitive Environment section. In 1996, the NJBPU approved a provisional settlement for a combined levelized energy adjustment clause (LEAC) and Demand-Side Factor (DSF) increase of $27.9 million annually. The DSF is applied to customer rates so electric utilities can recover their demand-side management program costs, which include activities designed to improve efficiency in customer electricity use and load-management programs that reduce peak demand. Also in 1996, JCP&L, the staff of the NJBPU and the Division of Ratepayer Advocate reached an agreement on a variety of pending rate-related issues (Final Settlement). An Administrative Law Judge (ALJ) issued a decision recommending approval of the Final Settlement, but the NJBPU ordered additional evidentiary hearings on the recovery of buyout costs for the Freehold cogeneration project discussed below (see Managing Nonutility Generation section). In December 1996, the ALJ issued a further decision recommending that recovery of the Freehold buyout costs be approved, subject to possible revocation or modification, if it is determined that the project F-32 GPU, Inc. and Subsidiary Companies was not viable when it was bought out. On December 31, 1996, an Addendum revising the Final Settlement was agreed upon by JCP&L, the staff of the NJBPU and the Division of Ratepayer Advocate. In January 1997, the NJBPU staff recommended that rate recovery of the Freehold buyout costs be permitted. JCP&L expects the NJBPU to issue an order in the first quarter of 1997 approving the Final Settlement as revised. There can be no assurance as to the outcome of this proceeding. Provisions of the Final Settlement, as revised by the Addendum, include a further annual increase of $7 million in the LEAC in addition to those noted above and an annual reduction of $11 million in base rates. Base rates would be frozen at that level until the year 2000, and the LEAC rate frozen through the year 1999. JCP&L could seek a LEAC rate increase if the deferred LEAC balance is projected to exceed $40 million, or a base rate increase under certain other conditions, such as a major change in the current regulatory environment. The Final Settlement provides for recovery in base rates, beginning in 1998, of all OPEB costs recorded in accordance with Statement of Financial Accounting Standards No. 106 including amounts previously deferred and an increase in decommissioning expense to reflect the radiological decommissioning and nonradiological removal costs estimated in the 1995 site- specific studies performed for GPUN (see Nuclear Plant Retirement Costs section of Note 14 to GPU's Consolidated Financial Statements). Also, included in base rates would be recovery of the remaining investments in the 58 MW Werner Unit 4 and 72 MW Gilbert Unit 3 generating plants, which were retired in 1996. The Final Settlement also provides for recovery through the LEAC of: (1) buyout costs up to $130 million, and 50% of any costs from $130 million to $140 million, over a seven-year period for the termination of the Freehold power purchase agreement; and (2) $14 million of the $17 million buyout costs, over a two year period, for the termination of the agreement to purchase power from the proposed 200 MW Crown/Vista project. JCP&L wrote-off the remaining $3 million of buyout costs for the Crown/Vista project in the second quarter of 1996. In addition, the Final Settlement resolves the NJBPU's generic proceeding regarding recovery of capacity costs associated with electric power purchases from NUG projects which the Division of the Ratepayer Advocate claimed to result in a double recovery. JCP&L would not have to refund any amounts previously collected. The Final Settlement provides annual allowances for the recovery of forecasted additions to nuclear plant. The Final Settlement also provides that if JCP&L's return on equity exceeds 12.2%, excluding demand-side management and nuclear performance incentives, the excess would be used to reduce both customer rates and certain regulatory assets. THE GPU ENERGY COMPANIES' SUPPLY PLAN Under traditional retail regulation, supply planning in the electric utility industry is directly related to projected growth in a utility's franchise service territory. In light of retail access legislation enacted in Pennsylvania and proposed in New Jersey, the extent to which competition will affect the GPU Energy companies' supply plan remains uncertain (see F-33 GPU, Inc. and Subsidiary Companies Competitive Environment section). As the GPU Energy companies prepare to operate in a competitive environment, its supply planning strategy is being modified. One planning effort is focused on providing for the needs of existing retail customers who continue to receive energy supplied by the GPU Energy companies and to whom the GPU Energy companies will continue to have an obligation to serve. The second planning effort will focus on those new customers who may choose the GPU Energy companies as their alternative supplier. Over the next five years, the GPU Energy companies' existing franchise service territories are expected to experience an average annual growth in sales of about 1.7% (JCP&L 1.7%; Met-Ed 1.9%; Penelec 1.7%), principally due to continued economic growth and a slight increase in the number of customer. To be able to meet this growth, if necessary, actual and projected capacity and sources of energy are as follows: Capacity 1996 2001 MW % MW % Coal 3,024 29 2,746 25 Nuclear 1,405 13 1,405 13 Gas, hydro & oil 2,177 21 2,082 19 Contracted purchases 3,901 37 3,763 34 Uncommitted sources - - 1,021 9 Total 10,507 100 11,017 100 Sources of Energy 1996 2001 GWH % GWH % Coal 18,133 36 18,581 36 Nuclear 11,439 23 10,338 20 Gas, hydro & oil 812 2 855 2 Contracted purchases 16,365 32 18,226 36 Spot market & interchange purchases 3,476 7 3,279 6 Total 50,225 100 51,279 100 In response to this competitive climate in which it is likely a major portion of the GPU Energy companies' existing customer base will be able to choose their electric generation supplier, and the surplus capacity position of nearby utilities, the GPU Energy companies' supply plan focuses increasingly on short- to intermediate-term commitments, reliance on "spot" market purchases, and avoidance of long-term firm commitments. The GPU Energy companies' present strategy includes minimizing the financial exposure associated with new long-term purchase commitments and the construction of new facilities by evaluating these options in terms of an unregulated power market. As part of this strategy, the GPU Energy companies are continually evaluating the future financial viability of their nuclear and fossil generation assets and will retire or otherwise dispose of plants that become uneconomical. The GPU Energy companies intend to take necessary actions to avoid adding new capacity which would result in costs that may exceed future market prices. In addition, the GPU Energy companies intend to continue to F-34 GPU, Inc. and Subsidiary Companies seek regulatory support to renegotiate or buy out contracts with NUGs where the pricing is in excess of projected market prices. New Energy Supplies The GPU Energy companies' supply plan includes contracted capacity from NUGs, the replacement of expiring utility purchase contracts, the construction of new peaking units, and the continued promotion of economic energy-conservation and load-management programs. The supply plan also includes the addition of approximately 1,021 MW (JCP&L 816 MW; Met-Ed 78 MW; Penelec 127 MW) of currently uncommitted capacity. JCP&L has constructed a 141 MW gas-fired combustion turbine at its Gilbert generating station at a cost of approximately $50 million. The facility was placed in service in July 1996. In January 1996, JCP&L issued an all-supply source solicitation for the supply of energy and capacity to meet its forecasted needs. In October 1996, four potential suppliers were selected to provide capacity for four years, beginning in June 1999. Contract negotiations are currently in progress to provide for firm and optional purchases of capacity and energy from sources in New Jersey, Pennsylvania and New York. The GPU Energy companies will continue to evaluate additional economic purchase opportunities as both demand and supply market conditions evolve. If warranted, the GPU Energy companies will conduct further solicitations to fill a part of their uncommitted supply needs. Managing Nonutility Generation The GPU Energy companies are seeking to reduce the above market costs of NUG agreements by: (1) attempting to convert must-run agreements to dispatchable agreements; (2) attempting to renegotiate prices of the agreements; (3) offering contract buyouts; and (4) initiating proceedings before federal and state agencies, and in the courts, where appropriate. In addition, the GPU Energy companies intend to avoid, to the maximum extent practicable, entering into any new NUG agreements that are not needed or not consistent with current market pricing and are supporting legislative efforts to repeal PURPA. These efforts may result in claims against GPU for substantial damages. There can, however, be no assurance as to what extent these efforts will be successful in whole or in part. In 1996, JCP&L entered into an agreement with Freehold Cogeneration Associates (Freehold), the developer of a proposed 110 MW gas-fired cogeneration project, that terminates JCP&L's long-term obligation to purchase power from the project. JCP&L expects that the buyout will save customers $1.1 billion over the term of the power purchase contract based on the projected cost of alternative sources of energy. JCP&L has agreed to pay Freehold $125 million, of which $65 million was paid in 1996 and the remainder to be paid over a three-year period. Associated with this buyout are certain payments to third parties, which could be material in amount. As part of the Final Settlement (see Rate Matters section), JCP&L would recover buyout costs of up to $130 million, and 50% of any costs from $130 million to $140 million, F-35 GPU, Inc. and Subsidiary Companies over a seven-year period. In October 1996, JCP&L was named as a defendant in a breach of contract lawsuit against Freehold brought by Nestle Beverage Company (Nestle) in New Jersey Superior Court. Nestle is seeking damages of at least $75 million for Freehold's alleged breach of the steam sales agreement and approximately $412 million in damages against JCP&L for alleged unlawful interference with that agreement. Nestle has also requested punitive damages in an unspecified amount. JCP&L believes the claims against it are without merit (see Other Commitments and Contingencies section of Note 14 to GPU's Consolidated Financial Statements). In February 1997, Met-Ed and Penelec entered into restructured power purchase agreements with AES Power Corporation (AES) for 377 MW and 80 MW, respectively, relating to a gas-fired combined-cycle facility that AES plans to construct in Southeastern Pennsylvania. In 1996, AES purchased the interests of the developers of the proposed Altoona, Blue Mountain and York County NUG facilities and plans to construct a single fully dispatchable NUG facility. The restructured power purchase agreements, which are subject to PaPUC approval, are for an initial eight-year term, with options for extensions. Met-Ed has paid $63.5 million to terminate the power purchase agreements it had for the Blue Mountain and York County facilities. If the restructured power purchase agreements with AES are not approved by the PaPUC, Met-Ed and Penelec have agreed to pay AES up to an additional $28 million and $8.3 million, respectively. Met-Ed has received approval to recover up to $35 million in buyout costs for the proposed York County project through its ECR over three years, beginning in 1997 and intends to seek recovery of buyout costs for the Blue Mountain project. Penelec also entered into an agreement in 1996 with the developer of a proposed 80 MW coal-fired cogeneration facility that was to be built in western Pennsylvania. Under the agreement, Penelec paid the developer $11.7 million to cancel the project and both parties agreed to attempt to negotiate a new, competitively priced power purchase agreement. In November 1996, the power purchase agreement was amended to provide for a fully dispatchable gas-fired combined-cycle cogeneration facility. The agreement, which is subject to PaPUC approval, is for an initial eight-year term, with options for extension. Penelec intends to seek recovery of the $11.7 million in buyout costs. In December 1996, Met-Ed and Penelec requested PaPUC approval to, among other things, include their currently effective ECR in base rates including NUG buyout costs already in the ECR, effective January 1, 1997, and defer for possible future rate recovery NUG buyout costs not yet reflected in rates. In January 1997, the PaPUC issued a tentative order approving this request. For additional information, see the Competitive Environment section. ENVIRONMENTAL MATTERS The federal Clean Air Act Amendments of 1990 (Clean Air Act) require substantial reductions in sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions by the year 2000. The GPU Energy companies plan to install and F-36 GPU, Inc. and Subsidiary Companies operate emission control equipment at some coal-fired facilities and switch to lower sulfur coal in conjunction with the purchase of SO2 and NOx allowances at other coal-fired facilities. To comply with the Clean Air Act, the GPU Energy companies expect to spend up to $277 million (JCP&L $46 million; Met-Ed $117 million; Penelec $114 million) for air pollution control equipment by the year 2000, of which approximately $240 million (JCP&L $43 million; Met-Ed $95 million; Penelec $102 million) has already been spent. In 1994, the Ozone Transport Commission (OTC), consisting of representatives of 12 northeast states (including New Jersey and Pennsylvania) and the District of Columbia, proposed reductions in NOx emissions it believes necessary to meet ambient air quality standards for ozone and the statutory deadlines set by the Clean Air Act. The GPU Energy companies expect that the U.S. Environmental Protection Agency (EPA) will approve state implementation plans consistent with the proposal, and that as a result, they will spend an estimated $17 million (JCP&L $1 million; Met-Ed $9 million; Penelec $7 million) (included in the Clean Air Act total), beginning in 1997, to meet the 1999 seasonal reductions agreed upon by the OTC. The OTC has stated that it anticipates that additional NOx reductions will be necessary to meet the Clean Air Act's 2005 National Ambient Air Quality Standard (NAAQS) for ozone. However, the specific requirements that will have to be met at that time have not been finalized. In addition, the EPA has recently proposed changes to the NAAQS for ozone, particulate matter and regional haze. The GPU Energy companies are unable to determine what additional costs, if any, will be incurred. In developing their least-cost plan to comply with the Clean Air Act, the GPU Energy companies will continue to evaluate major capital investments compared to participation in the SO2 and NOx emission allowance market and the use of low-sulfur fuel or retirement of facilities. These and other compliance alternatives may result in the substitution of increased operating expenses for capital costs. For more information, see the Environmental Matters section of Note 14 to GPU's Consolidated Financial Statements. LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS In 1996, a U.S. District Court granted a motion for summary judgment filed by GPU, Inc. and the GPU Energy companies, dismissing all of the 2,100 pending claims for alleged personal injury and punitive damages filed as a result of the TMI-2 accident in March 1979. The plaintiffs have appealed the District Court's ruling to the Court of Appeals for the Third Circuit. There can be no assurance as to the outcome of this litigation. For more information, see the Nuclear Facilities section of Note 14 to GPU's Consolidated Financial Statements. F-37 GPU, Inc. and Subsidiary Companies EFFECTS OF INFLATION As competition and deregulation accelerate, there can be no assurance as to the future recovery of increased operating expenses or utility plant investments through traditional ratemaking. As a result, the GPU Energy companies are focusing less on the ratemaking process, and are actively trying to find new ways to increase revenues, improve performance and reduce operating costs to facilitate the competitive pricing of their products and services. ACCOUNTING MATTERS In June 1996, the Financial Accounting Standards Board issued Financial Accounting Standard No. 125 (FAS 125), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which is effective for transactions occurring after December 31, 1996. The accounting for the GPU Energy companies' securitization of stranded costs is expected to be covered by this statement. In February 1997, the staff of the SEC Chief Accountant's Office concluded that in applying FAS 125 with respect to several California utilities' securitization plans, the enforceable right of these utilities to recover the cost of their "stranded assets" was not a contractual right and therefore not a financial asset as defined by FAS 125. Under this basis, a utility would not be able to remove the related "stranded assets" from its balance sheet. The accounting for securitizations by other utilities will be based on specific facts and circumstances of the individual utility, including the legislation enacted in its state and the particular securitization structure. F-38 GPU, Inc. and Subsidiary Companies REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors GPU, Inc. Parsippany, New Jersey We have audited the consolidated financial statements and financial statement schedule of GPU, Inc. and Subsidiary Companies as listed in the index on page F-1 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of GPU, Inc. and Subsidiary Companies as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. New York, New York February 5, 1997 F-39 GPU, Inc. and Subsidiary Companies CONSOLIDATED STATEMENTS OF INCOME
(In Thousands) For The Years Ended December 31, 1996 1995 1994 Operating Revenues $3,918,089 $3,804,656 $3,649,516 Operating Expenses: Fuel 371,396 363,211 363,834 Power purchased and interchanged 1,005,630 1,022,361 894,560 Deferral of energy costs, net 19,788 (5,902) (29,025) Other operation and maintenance 1,090,888 963,609 1,076,925 Depreciation and amortization 400,253 377,650 353,705 Taxes, other than income taxes 355,283 349,221 348,945 Total operating expenses 3,243,238 3,070,150 3,008,944 Operating Income Before Income Taxes 674,851 734,506 640,572 Income taxes 166,572 173,955 152,047 Operating Income 508,279 560,551 488,525 Other Income and Deductions: Allowance for other funds used during construction 2,249 5,113 4,712 Other income/(expense), net 28,151 216,110 (152,236) Income taxes (147) (90,751) 66,369 Total other income and deductions 30,253 130,472 (81,155) Income Before Interest Charges and Preferred Dividends 538,532 691,023 407,370 Interest Charges and Preferred Dividends: Interest on long-term debt 184,675 188,321 183,186 Other interest 28,809 30,364 39,227 Allowance for borrowed funds used during construction (8,423) (9,558) (7,115) Dividends on subsidiary-obligated mandatorily redeemable preferred securities 28,888 24,816 7,692 Preferred stock dividends of subsidiaries 15,519 16,945 20,692 Gain on preferred stock reacquisition (9,288) - - Total interest charges and preferred dividends 240,180 250,888 243,682 Net Income $ 298,352 $ 440,135 $ 163,688 Earnings Per Average Common Share $ 2.47 $ 3.79 $ 1.42 Average Common Shares Outstanding (In Thousands) 120,743 116,214 115,160 Cash Dividends Paid Per Share $ 1.925 $ 1.86 $ 1.775 The accompanying notes are an integral part of the consolidated financial statements. F-40 GPU, Inc. and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1996 1995 ASSETS Utility Plant: In service, at original cost $ 9,646,380 $9,295,630 Less, accumulated depreciation 3,704,026 3,433,240 Net utility plant in service 5,942,354 5,862,390 Construction work in progress 277,440 313,471 Other, net 168,029 193,356 Net utility plant 6,387,823 6,369,217 Other Property and Investments: GPU International Group investments, net 924,397 288,044 Nuclear decommissioning trusts, at market 464,011 362,957 Nuclear fuel disposal trust, at market 101,661 95,393 Other, net 51,122 39,505 Total other property and investments 1,541,191 785,899 Current Assets: Cash and temporary cash investments 31,604 18,422 Special deposits 47,545 14,877 Accounts receivable: Customers, net 270,844 278,643 Other 91,637 69,773 Unbilled revenues 114,891 128,749 Materials and supplies, at average cost or less: Construction and maintenance 187,130 194,769 Fuel 40,207 39,795 Deferred income taxes 32,148 20,090 Prepayments 81,168 42,746 Total current assets 897,174 807,864 Deferred Debits and Other Assets: Regulatory assets: Three Mile Island Unit 2 deferred costs 356,517 368,712 Income taxes recoverable through future rates 527,385 527,584 Nonutility generation contract buyout costs 242,481 84,132 Unamortized property losses 100,310 105,729 Other 426,579 353,551 Total regulatory assets 1,653,272 1,439,708 Deferred income taxes 332,828 330,186 Other 128,931 116,642 Total deferred debits and other assets 2,115,031 1,886,536 Total Assets $10,941,219 $9,849,516 The accompanying notes are an integral part of the consolidated financial statements. F-41 GPU, Inc. and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1996 1995 LIABILITIES AND CAPITAL Capitalization: Common stock $ 314,458 $ 314,458 Capital surplus 750,569 746,449 Retained earnings 2,068,976 2,004,072 Total 3,134,003 3,064,979 Less, reacquired common stock, at cost 86,416 90,345 Total common stockholders' equity 3,047,587 2,974,634 Cumulative preferred stock: With mandatory redemption 114,000 134,000 Without mandatory redemption 66,478 98,116 Subsidiary-obligated mandatorily redeemable preferred securities 330,000 330,000 Long-term debt 3,177,016 2,567,898 Total capitalization 6,735,081 6,104,648 Current Liabilities: Securities due within one year 178,583 131,246 Notes payable 265,547 123,890 Obligations under capital leases 143,818 159,565 Accounts payable 354,819 318,394 Taxes accrued 25,717 46,613 Deferred energy 15,559 (13,208) Interest accrued 70,370 69,456 Other 282,193 252,306 Total current liabilities 1,336,606 1,088,262 Deferred Credits and Other Liabilities: Deferred income taxes 1,562,979 1,466,060 Unamortized investment tax credits 133,572 145,375 Three Mile Island Unit 2 future costs 430,508 413,031 Regulatory liabilities 89,815 97,999 Other 652,658 534,141 Total deferred credits and other liabilities 2,869,532 2,656,606 Commitments and Contingencies (Note 14) Total Liabilities and Capital $10,941,219 $9,849,516 The accompanying notes are an integral part of the consolidated financial statements. F-42 GPU, Inc. and Subsidiary Companies CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (In Thousands) For The Years Ended December 31, 1996 1995 1994 Balance at beginning of year $2,004,072 $1,775,759 $1,813,490 Net income 298,352 440,135 163,688 Cash dividends declared on common stock (235,731) (218,288) (207,215) Net unrealized gain on investments 704 5,731 6,549 Net foreign currency translation gain 3,054 959 - Other adjustments, net (1,475) (224) (753) Balance at end of year $2,068,976 $2,004,072 $1,775,759 The accompanying notes are an integral part of the consolidated financial statements. F-43 GPU, Inc. and Subsidiary Companies CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) For The Years Ended December 31, 1996 1995 1994 Operating Activities: Net income $ 298,352 $ 440,135 $ 163,688 Adjustments to reconcile income to cash provided: Depreciation and amortization 422,506 381,618 363,099 Amortization of property under capital leases 55,642 57,324 56,793 Equity in undistributed (earnings)/losses of affiliates (33,981) 3,597 1,014 Three Mile Island Unit 2 costs - (170,005) 183,944 Voluntary enhanced retirement programs 122,739 - 126,964 Nuclear outage maintenance costs, net (6,078) 7,407 (7,425) Deferred income taxes and investment tax credits, net 57,144 115,278 (80,139) Deferred energy costs, net 19,719 (6,061) (28,463) Accretion income (11,610) (12,520) (14,855) Allowance for other funds used during construction (2,249) (5,113) (4,713) Changes in working capital: Receivables 2,893 (54,993) 6,799 Materials and supplies 6,604 9,323 316 Special deposits and prepayments (36,294) 14,401 25,696 Payables and accrued liabilities (103,221) (18,651) (59,798) Nonutility generation contract buyout costs (120,018) (38,499) - Other, net (29,479) (58,008) (4,325) Net cash provided by operating activities 642,669 665,233 728,595 Investing Activities: Cash construction expenditures (403,880) (461,860) (585,916) Contributions to decommissioning trusts (40,324) (37,541) (33,575) GPU International Group investments (573,587) (164,831) (73,835) Other, net (16,251) (3,834) (17,429) Net cash used for investing activities (1,034,042) (668,066) (710,755) Financing Activities: Issuance of long-term debt 743,596 403,656 178,787 Increase/(Decrease) in notes payable, net 141,657 (223,962) 131,574 Retirement of long-term debt (150,763) (192,664) (197,232) Capital lease principal payments (56,217) (50,611) (61,002) Issuance of common stock - 157,545 - Issuance of subsidiary-obligated mandatorily redeemable preferred securities - 121,063 197,917 Redemption of preferred stock of subsidiaries (42,347) (6,049) (62,763) Dividends paid on common stock (231,956) (215,413) (204,233) Net cash provided/(required) by financing activities 403,970 (6,435) (16,952) Effect of exchange rate changes on cash 585 959 - Net increase/(decrease) in cash and temporary cash investments from above activities 13,182 (8,309) 888 Cash and temporary cash investments, beginning of year 18,422 26,731 25,843 Cash and temporary cash investments, end of year $ 31,604 $ 18,422 $ 26,731 Supplemental Disclosure: Interest and preferred dividends paid $ 281,057 $ 254,906 $ 271,303 Income taxes paid $ 153,599 $ 187,361 $ 124,274 New capital lease obligations incurred $ 34,826 $ 54,478 $ 43,246 Common stock dividends declared but not paid $ 58,493 $ 54,718 $ 51,843 The accompanying notes are an integral part of the consolidated financial statements. F-44
GPU, Inc. and Subsidiary Companies COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GPU, Inc. (formerly General Public Utilities Corporation), a Pennsylvania corporation, is a holding company registered under the Public Utility Holding Company Act of 1935. GPU, Inc. does not directly operate any utility properties, but owns all the outstanding common stock of three domestic electric utilities serving customers in New Jersey -- Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). In 1996, the customer service, transmission and distribution operations of these electric utilities began doing business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The fossil-fuel and hydroelectric generating facilities owned by these utilities are operated and maintained by GPU Generation, Inc. (Genco), and the nuclear generating units are operated and maintained by GPU Nuclear, Inc. (GPUN). GPU, Inc. also owns all of the common stock of GPU International, Inc., GPU Power, Inc. and GPU Electric, Inc. These three companies (collectively, the GPU International Group) develop, own and operate generation, transmission and distribution facilities and supply businesses in the United States and in foreign countries. GPU Service, Inc. (GPUS), a service company, is also a wholly-owned subsidiary of GPU, Inc. All of these companies considered together are referred to as "GPU." The Notes to Consolidated Financial Statements are presented below on a combined basis for all of GPU, Inc., JCP&L, Met-Ed and Penelec. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates. SYSTEM OF ACCOUNTS Certain reclassifications of prior years' data have been made to conform with the current presentation. The GPU Energy companies' accounting records are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and adopted by the Pennsylvania Public Utility Commission (PaPUC) and the New Jersey Board of Public Utilities (NJBPU), and also comply with the Securities and Exchange Commission's rules and regulations. CONSOLIDATION The consolidated financial statements include the accounts of all subsidiaries. All significant intercompany transactions and accounts are eliminated in consolidation. GPU consolidates the accounts of its wholly- owned subsidiaries and any affiliates in which it has a controlling financial F-45 GPU, Inc. and Subsidiary Companies interest (generally evidenced by a greater than 50% ownership interest). GPU also uses the equity method of accounting for investments in affiliates in which it has the ability to exercise significant influence. (For further information, see Note 7, GPU International Group Equity Investments.) REGULATORY ACCOUNTING In accordance with Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," the consolidated financial statements reflect assets and costs in accordance with current cost-based ratemaking regulation. Continued accounting under FAS 71 requires that the following criteria be met: a) A utility's rates for regulated services provided to its customers are established by, or are subject to approval by, an independent third- party regulator; b) The regulated rates are designed to recover specific costs of providing the regulated services or products; and c) In view of the demand for the regulated services and the level of competition, direct and indirect, it is reasonable to assume that rates set at levels that will recover a utility's costs can be charged to and collected from customers. This criteria requires consideration of anticipated changes in levels of demand or competition during the recovery period for any capitalized costs. In accordance with the provisions of FAS 71, the GPU Energy companies have deferred certain costs pursuant to actions of the NJBPU, PaPUC and FERC, and are recovering or expect to recover such costs in electric rates charged to customers. Regulatory assets are reflected in the Deferred Debits and Other Assets section of the Consolidated Balance Sheets, and regulatory liabilities are reflected in the Deferred Credits and Other Liabilities section of the Consolidated Balance Sheets. (For further information about regulatory assets and liabilities, see Note 14, Commitments and Contingencies.) CURRENCY TRANSLATION In accordance with Statement of Financial Accounting Standards No. 52 (FAS 52), "Foreign Currency Translation," balance sheet accounts of the GPU International Group's foreign operations are translated from foreign currencies into U.S. dollars at either year-end rates or historical rates, while income statement accounts are translated at the weighted average exchange rates for the relevant period. The resulting translation adjustments are not material and are included in Retained Earnings. Gains and losses resulting from foreign currency transactions are included in Net Income. REVENUES The GPU Energy companies recognize electric operating revenues for services rendered (including an estimate of unbilled revenues) to the end of the relevant accounting period. F-46 GPU, Inc. and Subsidiary Companies DEFERRED ENERGY COSTS Energy costs are recognized in the period in which the related energy clause revenues are billed. Through December 31, 1996, Met-Ed and Penelec recovered energy costs through the Energy Cost Rate (ECR) mechanism and deferred any differences between actual energy costs and amounts recovered. Comprehensive legislation adopted in Pennsylvania in 1996, which provides for the restructuring of the electric utility industry in the state, capped rates that can be charged to customers for generation for up to nine years. In December 1996, Met-Ed and Penelec filed a request with the PaPUC and received a tentative order, effective for all bills rendered after January 1, 1997, which allows their currently effective ECRs to be included in base rates. As a result, effective January 1, 1997, Met-Ed and Penelec will no longer defer energy costs. (For further information, see Competitive Environment, Management's Discussion and Analysis.) JCP&L continues to recover energy- related costs through the Levelized Energy Adjustment Clause (LEAC). UTILITY PLANT It is the policy of the GPU Energy companies to record additions to utility plant (material, labor, overhead and an allowance for funds used during construction) at cost. The cost of current repairs and minor replacements is charged to appropriate operating and maintenance expense and clearing accounts, and the cost of renewals is capitalized. The original cost of utility plant retired or otherwise disposed of is charged to accumulated depreciation. DEPRECIATION GPU provides for depreciation at annual rates determined and revised periodically, on the basis of studies, to be sufficient to depreciate the original cost of depreciable property over estimated remaining service lives, which are generally longer than those employed for tax purposes. These rates, on an aggregate composite basis, were as follows: GPU JCP&L Met-Ed Penelec 1996 3.31% 3.58% 3.27% 2.82% 1995 3.22% 3.64% 3.07% 2.61% 1994 3.16% 3.62% 3.04% 2.49% ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) The Uniform System of Accounts defines AFUDC as "the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used." AFUDC is recorded as a charge to construction work in progress, and the equivalent credits are to interest charges for the pre-tax cost of borrowed funds and to other income for the allowance for other funds. While AFUDC results in an increase in utility plant and represents current earnings, it is realized in cash through depreciation or amortization allowances only when the related plant is recognized in rates. These rates, on an aggregate composite basis, were as follows: F-47 GPU, Inc. and Subsidiary Companies GPU JCP&L Met-Ed Penelec 1996 6.79% 6.88% 8.11% 6.15% 1995 8.05% 8.04% 8.62% 7.78% 1994 6.45% 5.35% 7.31% 7.19% AMORTIZATION POLICIES Accounting for TMI-2 and Forked River Investments: JCP&L is collecting annual revenues for the amortization of Three Mile Island Unit 2 (TMI-2) of $9.6 million. This level of revenue will be sufficient to recover the remaining investment by 2008. Met-Ed and Penelec have collected all of their TMI-2 investment attributable to retail customers. At December 31, 1996, $81 million is included in Unamortized property losses on the Consolidated Balance Sheets for JCP&L's Forked River project. JCP&L is collecting annual revenues for the amortization of this project of $11.2 million, which will be sufficient to recover its remaining investment by the year 2006. Because the GPU Energy companies have not been provided revenues for a return on the unamortized balances of the damaged TMI-2 facility and the cancelled Forked River project, these investments are being carried at their discounted present values. The related annual accretion, which represents the carrying charges that are accrued as the asset is written up from its discounted value, is recorded in Other Income/(Expense), Net on the Income Statement in accordance with Statement of Financial Accounting Standards No. 90, "Regulated Enterprises- Accounting for Abandonments and Disallowances of Plant Costs." Nuclear Fuel: Nuclear fuel is amortized on a unit-of-production basis. Rates are determined and periodically revised to amortize the cost of the fuel over its useful life. At December 31, 1996, the liability of the GPU Energy companies for future contributions to the Federal Decontamination and Decommissioning Fund for the cleanup of uranium enrichment plants operated by the Federal Government amounted to $34 million (JCP&L $22 million; Met-Ed $8 million; Penelec $4 million), and was primarily reflected in Deferred Credits and Other Liabilities-Other. Annual contributions, which began in 1993, are being made over a 15-year period and are being recovered from customers. At December 31, 1996, $36 million (JCP&L $23 million; Met-Ed $9 million; Penelec $4 million) was recorded on the Consolidated Balance Sheets in Regulatory assets-Other. Intangibles: The GPU International Group records goodwill for any amount paid over the fair value of net assets it acquires, and other intangible assets for the right to perform management services. As of December 31, 1996 and 1995, the GPU International Group had goodwill and other intangibles, net of accumulated amortization, of approximately $24 million and $32 million, respectively. Goodwill and other intangibles are amortized on a straight-line basis over a F-48 GPU, Inc. and Subsidiary Companies period of 40 years. Amortization expense, in the aggregate, amounted to $0.8 million and $0.9 million for the years ended December 31, 1996 and 1995, respectively. The GPU International Group periodically reviews projections of future cash flows from operations to assess any potential intangible impairment. An impairment, if identified, would be recorded based upon discounted projected cash flows. Goodwill related to the GPU International Group's purchase of Midlands Electricity plc and the other investments accounted for under the equity method is discussed in Note 6, Acquisition of Midlands Electricity plc and Note 7, GPU International Group Equity Investments. NUCLEAR OUTAGE MAINTENANCE COSTS The GPU Energy companies accrue incremental nuclear outage maintenance costs anticipated to be incurred during scheduled nuclear plant refueling outages to provide a proper matching of revenues to expenses. NUCLEAR FUEL DISPOSAL FEE The GPU Energy companies are providing for estimated future disposal costs for spent nuclear fuel at Oyster Creek and Three Mile Island Unit 1 (TMI-1) in accordance with the Nuclear Waste Policy Act of 1982. The GPU Energy companies entered into contracts in 1983 with the U.S. Department of Energy (DOE) for the disposal of spent nuclear fuel. The total liability under these contracts, including interest, at December 31, 1996, all of which relates to spent nuclear fuel from nuclear generation through April 1983, amounted to $171 million (JCP&L $128 million; Met-Ed $29 million; Penelec $14 million), and is reflected in Deferred Credits and Other Liabilities - Other. As the actual liability is substantially in excess of the amount recovered to date from ratepayers, the GPU Energy companies have reflected such excess of $21.6 million (JCP&L $23.3 million; Met-Ed $(1.2) million; Penelec $(0.5) million) at December 31, 1996 in Regulatory assets - Other. The rates presently charged to customers provide for the collection of these costs, plus interest, over remaining periods of 10 years for JCP&L and Met-Ed and one year for Penelec. The GPU Energy companies are collecting one mill per kilowatt-hour from their customers for spent nuclear fuel disposal costs resulting from nuclear generation subsequent to April 1983. These amounts are remitted quarterly to the DOE. (See Note 14, Commitments and Contingencies, for a discussion of the DOE's current inability to begin acceptance of spent nuclear fuel from the GPU Energy companies and other standard contract holders.) INCOME TAXES GPU files a consolidated federal income tax return. All participants are jointly and severally liable for the full amount of any tax, including penalties and interest, which may be assessed against the group. Deferred income taxes, which result primarily from liberalized depreciation methods, deferred energy costs, decommissioning funds and discounted Forked River and TMI-2 investments, reflect the impact of temporary F-49 GPU, Inc. and Subsidiary Companies differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. Investment tax credits (ITC) are amortized over the estimated service lives of the related facilities. CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS The carrying amounts of Temporary cash investments, Special deposits, Securities due within one year and Notes payable on the Consolidated Balance Sheets approximate fair value due to the short period to maturity. The carrying amounts of the Nuclear decommissioning trusts and Nuclear fuel disposal trust, whose assets are invested in cash equivalents and debt and equity securities, also approximate fair value. At December 31, 1996, the Consolidated Balance Sheets included $47 million in restricted cash, related to the GPU International Group's 50% ownership interest in Empresa Guaracachi, S.A. ENVIRONMENTAL LIABILITIES GPU may be subject to loss contingencies resulting from environmental laws and regulations, which include obligations to mitigate the effects on the environment of the disposal or release of certain hazardous wastes and substances at various sites. GPU records liabilities (on an undiscounted basis) for hazardous waste sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated and adjusts these liabilities as required to reflect changes in circumstances. STATEMENTS OF CASH FLOWS For the purpose of the consolidated statements of cash flows, temporary investments include all unrestricted liquid assets, such as cash deposits and debt securities, with maturities generally of three months or less. F-50 GPU, Inc. and Subsidiary Companies 2. SHORT-TERM BORROWING ARRANGEMENTS At December 31, 1996 and 1995, GPU had short-term notes outstanding as follows:
1996 1995 Balance Weighted Balance Weighted Company Facility Outstanding Avg. Rate Outstanding Avg. Rate (in millions) (in millions) GPU, Inc. Bank Lines of Credit $ 75 5.7% $ 72 6.0% JCP&L Bank Lines of Credit 32 6.5 1 6.0 Met-Ed Bank Lines of Credit 51 5.9 22 5.6 Penelec Bank Lines of Credit 99 6.1 27 5.9 Commercial Paper 9 5.8 - - GPU International Bank Lines of Credit - - 2 6.3 Total $266 6.0% $124 5.9%
GPU has $527 million of credit facilities, including two Revolving Credit Agreements, as discussed below: Under the Credit Agreement between GPU, Inc., the GPU Energy companies and a consortium of banks, total borrowings are limited to $250 million outstanding at any time and are subject to various covenants and acceleration under certain circumstances. The agreement expires May 6, 2001, and a commitment fee on the unborrowed amount of 1/8 of 1% is payable annually. Borrowing rates and a facility fee are based on the long-term debt ratings of the GPU Energy companies. GPU International, Inc. has a separate Credit Agreement providing for borrowings (guaranteed by GPU, Inc.) through December 1997 of up to $30 million outstanding at any time, which decreases for two years thereafter. Up to $15 million may be borrowed in the form of letters of credit. An annual commitment fee of 3/8 of 1% on unborrowed amounts and a letter of credit fee of 1/2 of 1% are payable by GPU International, Inc. F-51 GPU, Inc. and Subsidiary Companies 3. LONG-TERM DEBT At December 31, 1996 and 1995, long-term debt outstanding was as follows: (in thousands) JCP&L First Mortgage Bonds - Series as noted (a):
1996 1995 1996 1995 6 1/8% due 1996 $ - $25,701 6.85% due 2006 $ 40,000 $ - 6.90% due 1997 30,000 30,000 7.90% due 2007 40,000 40,000 6 5/8% due 1997 25,874 25,874 7 1/8% due 2009 6,300 6,300 6.70% due 1997 20,000 20,000 7.10% due 2015 12,200 12,200 7 1/4% due 1998 24,191 24,191 9.20% due 2021 50,000 50,000 6.04% due 2000 40,000 40,000 8.55% due 2022 30,000 30,000 6.45% due 2001 40,000 - 8.82% due 2022 12,000 12,000 9% due 2002 50,000 50,000 8.85% due 2022 38,000 38,000 6 3/8% due 2003 150,000 150,000 8.32% due 2022 40,000 40,000 7 1/8% due 2004 160,000 160,000 7.98% due 2023 40,000 40,000 6.78% due 2005 50,000 50,000 7 1/2% due 2023 125,000 125,000 8 1/4% due 2006 50,000 50,000 8.45% due 2025 50,000 50,000 6 3/4% due 2025 150,000 150,000 Subtotal $1,273,565 $1,219,266 Amount due within one year (100,065) (25,701) Total $1,173,500 $1,193,565 Other long-term debt (excludes amounts due within one year of $10 for 1996 and $9 for 1995) 3,048 3,058 Unamortized net discount on long-term debt (3,457) (3,678) Total long-term debt $1,173,091 $1,192,945 Met-Ed First Mortgage Bonds - Series as noted (a): 1996 1995 1996 1995 5 3/4% due 1996 $ - $15,000 6.77% due 2005 $ 30,000 $ 30,000 7.47% due 1997 20,000 20,000 7.35% due 2005 20,000 20,000 9.2% due 1997 20,000 20,000 6.36% due 2006 17,000 17,000 7.05% due 1999 30,000 30,000 6.40% due 2006 33,000 33,000 6.2% due 2000 30,000 30,000 6% due 2008 8,700 8,700 9.48% due 2000 20,000 20,000 6.1% due 2021 28,500 28,500 8.05% due 2002 30,000 30,000 8.6% due 2022 30,000 30,000 6.6% due 2003 20,000 20,000 8.8% due 2022 30,000 30,000 7.22% due 2003 40,000 40,000 6.97% due 2023 30,000 30,000 9.1% due 2003 30,000 30,000 7.65% due 2023 30,000 30,000 6.34% due 2004 40,000 40,000 8.15% due 2023 60,000 60,000 Subtotal $ 597,200 $ 612,200 Amount due within one year (40,000) (15,000) Total 557,200 597,200 Other long-term debt (excludes amounts due within one year of $20 for 1996 and $19 for 1995) 6,095 6,115 Unamortized net discount on long-term debt (43) (47) Total long-term debt $ 563,252 $ 603,268 F-52 GPU, Inc. and Subsidiary Companies (in thousands) Penelec First Mortgage Bonds-Series as noted (a): 1996 1995 1996 1995 6 1/4% due 1996 $ - $25,000 6.10% due 2004 $ 30,000 $ 30,000 6.80% due 1996 - 20,000 6.7% due 2005 30,000 30,000 7.45% due 1996 - 30,000 6.35% due 2006 40,000 40,000 6.1/4% due 1997 26,000 26,000 8.05% due 2006 10,000 10,000 7 7/8% due 1998 30,000 30,000 6 1/8% due 2007 4,110 4,110 6.15% due 2000 30,000 30,000 6.55% due 2009 50,000 50,000 6.8% due 2001 20,000 - 5.35% due 2010 12,310 12,310 8.70% due 2001 30,000 30,000 5.35% due 2010 12,000 12,000 7.40% due 2002 10,000 10,000 5.80% due 2020 20,000 20,000 7.43% due 2002 30,000 30,000 8.33% due 2022 20,000 20,000 7.92% due 2002 10,000 10,000 7.49% due 2023 30,000 30,000 7.40% due 2003 10,000 10,000 8.38% due 2024 40,000 40,000 6.60% due 2003 30,000 30,000 8.61% due 2025 30,000 30,000 7.02% due 2003 20,000 - 7.53% due 2025 40,000 40,000 7.48% due 2004 40,000 40,000 6.05% due 2025 25,000 25,000 Subtotal $ 679,420 $ 714,420 Amounts due within one year (26,000) (75,000) Total $ 653,420 $ 639,420 Other long-term debt (excludes amounts due within one year of $10 for 1996 and $9 for 1995) 3,048 3,058 Unamortized net (discount)/premium on long-term debt (9) 9 Total long-term debt $ 656,459 $ 642,487 (a) Substantially all of the utility plant owned by the GPU Energy companies is subject to the lien of their respective mortgages. GPU International Group Other long-term debt (excludes amounts due within one year of $2,478 for 1996 and $2,308 for 1995) $ 749,214 $ 101,698 GPUS Other long-term debt (excludes amounts due within one year of $3,200 for 1995) $ 35,000 $ 27,500 Total - GPU, Inc. and Subsidiary Companies First Mortgage Bonds $2,550,185 $2,545,886 Amounts due within one year (166,065) (115,701) Total $2,384,120 $2,430,185 Other long-term debt $ 798,922 $ 146,974 Amounts due within one year (2,518) (5,545) Total $ 796,404 $ 141,429 Unamortized net discount (3,508) (3,716) Total long-term debt $3,177,016 $2,567,898 F-53
GPU, Inc. and Subsidiary Companies At December 31, 1996, the GPU International Group had long-term debt outstanding of approximately $752 million (included in the table above under "Other long-term debt"). Of this amount, approximately $680 million was guaranteed by GPU, Inc. The guaranteed amount consisted of the following: 342 million pounds (approximately U.S. $586 million at December 31, 1996) under a bank term loan facility used to fund EI UK Holdings, Inc.'s investment in Avon Energy Partners Holdings (see Note 6); A$90 million (approximately U.S. $72 million at December 31, 1996 and U.S. $68 million at December 31, 1995) through a bank term loan facility used to fund a GPU Electric, Inc. subsidiary's purchase of its interest in Solaris Power; and approximately $22 million through a bank term loan facility used to fund a GPU International, Inc. subsidiary's investment in Mid-Georgia Cogen, L.P. For the years 1997, 1998, 1999, 2000 and 2001, GPU has long-term debt maturities for first mortgage bonds and other long-term debt as follows: (in millions) Company 1997 1998 1999 2000 2001 JCP&L $100 $ - $ - $ 40 $ 40 Met-Ed 40 - 30 50 - Penelec 26 30 - 30 50 GPU International Group 3 97 3 589 3 GPUS - - - - 35 Total $169 $127 $ 33 $709 $128 The estimated fair value of GPU's long-term debt, as of December 31, 1996 and 1995 was as follows: (in thousands) 1996 1995 Carrying Fair Carrying Fair Amount Value Amount Value JCP&L $1,173,091 $1,177,544 $1,192,945 $1,260,502 Met-Ed 563,252 567,075 603,268 644,838 Penelec 656,459 640,274 642,487 677,564 GPU International Group 749,214 742,126 101,698 101,698 GPUS 35,000 35,000 27,500 27,500 Total $3,177,016 $3,162,019 $2,567,898 $2,712,102 The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to GPU for debt of the same remaining maturities and credit qualities. 4. SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES JCP&L Capital, L.P., Met-Ed Capital, L.P. and Penelec Capital, L.P., are special-purpose partnerships in which a subsidiary of JCP&L, Met-Ed and Penelec, respectively, is the sole general partner. In 1995, JCP&L Capital, L.P. issued $125 million of mandatorily redeemable preferred securities (Preferred Securities) and in 1994, Met-Ed Capital, L.P. and Penelec Capital, L.P. issued $100 million and $105 million, respectively, of Preferred Securities. The proceeds were then lent to JCP&L, Met-Ed and Penelec, F-54 GPU, Inc. and Subsidiary Companies respectively, which, in turn, issued their deferrable interest subordinated debentures to the partnerships. The following issues of Preferred Securities were outstanding at December 31, 1996 and 1995: Issue Securities Total Company Series Price Outstanding (in thousands) JCP&L Capital, L.P. 8.56% $25 5,000,000 $125,000 Met-Ed Capital, L.P. 9.00% $25 4,000,000 100,000 Penelec Capital, L.P. 8.75% $25 4,200,000 105,000 Total $330,000 The fair value of the Preferred Securities based on market price quotations at December 31, 1996 and 1995 was $337 million (JCP&L $127 million; Met-Ed $103 million; Penelec $107 million) and $347 million (JCP&L $131 million; Met-Ed $106 million; Penelec $110 million), respectively. The Preferred Securities of JCP&L Capital, L.P. mature in 2044, while those of Met-Ed Capital, L.P. and Penelec Capital, L.P. mature in 2043. Their respective Preferred Securities are redeemable at the option of JCP&L beginning in 2000, and at the option of Met-Ed and Penelec beginning in 1999, at 100% of their principal amount, or earlier under certain limited circumstances, including the loss of the tax deduction for interest paid on the subordinated debentures. JCP&L, Met-Ed and Penelec have fully and unconditionally guaranteed payment of distributions, to the extent there is sufficient cash on hand to permit such payments and legally available funds, and payments on liquidation or redemption of their respective Preferred Securities. Distributions on the Preferred Securities (and interest on the subordinated debentures) may be deferred for up to 60 months, but JCP&L, Met-Ed and Penelec may not pay dividends on, or redeem or acquire, any of their preferred or common stock until deferred payments on their respective subordinated debentures are paid in full. 5. CAPITAL STOCK At December 31, 1996 and 1995, GPU had the following issues of capital stock outstanding: GPU, Inc. Common stock, par value $2.50 a share; 350,000,000 shares authorized in both 1996 and 1995; 125,783,338 shares issued in both 1996 and 1995; and 120,611,137 and 120,423,341 shares outstanding in 1996 and 1995, respectively (a), (b), (c) (in thousands) 1996 1995 Common Stock $314,458 $314,458 F-55 GPU, Inc. and Subsidiary Companies JCP&L Cumulative preferred stock, without par value, 15,600,000 shares authorized, 1,615,000 and 1,815,000 shares issued and outstanding in 1996 and 1995, respectively (f): (in thousands) 1996 1995 Cumulative preferred stock - without mandatory redemption (g): 4% Series, 125,000 shares, callable at $106.50 a share $ 12,500 $ 12,500 7.88% Series E, 250,000 shares, callable at $103.65 a share 25,000 25,000 Subtotal 37,500 37,500 Premium on cumulative preferred stock 241 241 Total cumulative preferred stock - without mandatory redemption $ 37,741 $ 37,741 Cumulative preferred stock - with mandatory redemption (d), (e), (h): 8.48% Series I, 300,000 shares in 1996 and 500,000 shares in 1995 $ 30,000 $ 50,000 8.65% Series J, 500,000 shares 50,000 50,000 7.52% Series K, 440,000 shares 44,000 44,000 Subtotal 124,000 144,000 Amount due in one year (h) (10,000) (10,000) Total cumulative preferred stock - with mandatory redemption $114,000 $134,000 Common stock, par value $10 a share, 16,000,000 shares authorized, 15,371,270 shares issued and outstanding $153,713 $153,713 Met-Ed Cumulative preferred stock, without par value, 10,000,000 shares authorized, 119,475 and 233,912 shares issued and outstanding in 1996 and 1995, without mandatory redemption (f), (g), (i): (in thousands) 1996 1995 3.90% Series, 64,384 shares in 1996 and 117,729 shares in 1995, callable at $105.625 a share $ 6,439 $ 11,773 4.35% Series, 22,517 shares in 1996 and 33,429 shares in 1995, callable at $104.25 a share 2,252 3,325 3.85% Series, 9,252 shares in 1996 and 29,175 shares in 1995, callable at $104.00 a share 925 2,917 3.80% Series, 7,982 shares in 1996 and 18,122 shares in 1995, callable at $104.70 a share 798 1,812 4.45% Series, 15,340 shares in 1996 and 35,637 shares in 1995, callable at $104.25 a share 1,534 3,564 Subtotal 11,948 23,391 Premium on cumulative preferred stock 108 207 Total cumulative preferred stock $ 12,056 $ 23,598 Common stock, no par value, 900,000 shares authorized, 859,500 shares issued and outstanding $ 66,273 $ 66,273 F-56 GPU, Inc. and Subsidiary Companies Penelec Cumulative preferred stock, without par value, 11,435,000 shares authorized, 167,485 and 365,000 shares issued and outstanding in 1996 and 1995, no mandatory redemption (f), (g), (i): (in thousands) 1996 1995 4.40% Series B, 29,678 shares in 1996 and 56,810 shares in 1995, callable at $108.25 per share $ 2,968 $ 5,681 3.70% Series C, 49,568 shares in 1996 and 97,054 shares in 1995, callable at $105.00 per share 4,957 9,705 4.05% Series D, 28,219 shares in 1996 and 63,696 shares in 1995, callable at $104.53 per share 2,822 6,370 4.70% Series E, 14,103 shares in 1996 and 28,739 shares in 1995, callable at $105.25 per share 1,410 2,874 4.50% Series F, 17,081 shares in 1996 and 42,969 shares in 1995, callable at $104.27 per share 1,708 4,297 4.60% Series G, 26,836 shares in 1996 and 75,732 shares in 1995, callable at $104.25 per share 2,684 7,573 Subtotal 16,549 36,500 Premium on cumulative preferred stock 132 277 Total cumulative preferred stock $ 16,681 $ 36,777 Common stock, par value $20 per share, 5,400,000 shares authorized, 5,290,596 shares issued and outstanding $105,812 $105,812 Total - GPU. Inc. and Subsidiary Companies (in thousands) 1996 1995 Cumulative preferred stock: With mandatory redemption $114,000 $134,000 Without mandatory redemption 66,478 $ 98,116 Total cumulative preferred stock $180,478 $232,116 (a) In 1995, GPU, Inc. sold five million additional shares of common stock, for net proceeds of $157.5 million. The issuance resulted in a credit to capital surplus totaling $71.9 million. No shares of common stock were reacquired in 1996, 1995 or 1994. In 1996, 1995 and 1994, under GPU Inc.'s Dividend Reinvestment Plan, capital surplus was credited $3.0 million, $2.7 million and $2.3 million, respectively, for shares sold. There were 5,172,201 and 5,359,997 reacquired shares outstanding at December 31, 1996 and 1995, respectively. (b) In 1996, 1995 and 1994, pursuant to the 1990 Restricted Stock Plan, GPU, Inc. issued restricted units to officers representing rights to F-57 GPU, Inc. and Subsidiary Companies receive shares of common stock, on a one-for-one basis, at the end of the vesting or restriction period. Beginning with awards in 1995, the number of shares eventually issued will vary from the number of units awarded according to the degree that GPU, Inc.'s performance goals have been met for the restriction period. The shares issuable at the end of the period could range from 0% to 200% of the originally awarded units. The units are considered common stock equivalents and therefore are reflected in the computation of earnings per share shown on the income statement. The units accrue dividend equivalents on a quarterly basis, which are invested in additional equivalent units. In 1996, 1995 and 1994, GPU, Inc. awarded to plan participants 63,206, 83,600 and 34,595 restricted units, respectively. In 1996, 1995 and 1994, GPU, Inc. issued a total of 37,253, 30,558 and 6,275 shares, respectively, from previously reacquired shares. There were 258,705 and 195,499 restricted units outstanding at December 31, 1996 and 1995, respectively. (c) In 1996, GPU adopted Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based Compensation," which establishes a fair value-based method of accounting for employee stock-based compensation. Under this method, compensation cost is measured at the grant date, based on the market price of the stock at that date, and is recognized as expense over the restricted period. FAS 123 permits companies to continue to follow the accounting prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25), provided that pro forma disclosures of net income are made as if the fair value-based method of accounting had been applied. GPU has elected to continue accounting for stock-based compensation in accordance with APB No. 25, which contains provisions for subsequent adjustments to compensation cost based on market price fluctuations of the stock after the grant date. The pro forma effects on net income resulting from the application of the fair value-based method of accounting defined in FAS 123 are immaterial. (d) The 7.52% and 8.65% Series are callable at various prices above their stated values beginning in 2002 and 2000, respectively. The 7.52% Series is to be redeemed ratably over twenty years beginning in 1998. The 8.65% Series is to be redeemed ratably over six years beginning in 2000. The 8.48% Series is not callable and is to be redeemed ratably over a five- year period which began in 1996. (e) During 1996, JCP&L redeemed $20 million stated value of 8.48% cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. JCP&L's total redemption cost was $20 million. During 1995, JCP&L repurchased in the market 60,000 shares of its 7.52% cumulative preferred stock with mandatory redemption, with a stated value of $6 million. JCP&L's total redemption cost was $6.1 million, which resulted in a $0.1 million charge to Retained Earnings. (f) At December 31, 1996 and 1995, the GPU Energy companies were authorized to issue 37,035,000 shares of cumulative preferred stock. If dividends F-58 GPU, Inc. and Subsidiary Companies on any of the preferred stock are in arrears for four quarters, the holders of preferred stock, voting as a class, are entitled to elect a majority of the board of directors of that company until all dividends in arrears have been paid. A GPU Energy company may not redeem preferred stock unless dividends on all of its preferred stock for all past quarterly dividend periods have been paid or declared and set aside for payment. (g) The outstanding shares of preferred stock without mandatory redemption are callable at various prices above their stated values. At December 31, 1996, the aggregate amount at which these shares could be called by the GPU Energy companies was $69 million (JCP&L $39 million; Met-Ed $13 million; Penelec $17 million). (h) The outstanding shares with mandatory redemption have the following redemption requirements over the next five years: $10.0 million in 1997; $12.5 million in 1998 and 1999; and $10.8 million in 2000 and 2001. The fair value of the preferred stock with mandatory redemption, based on market price quotations at December 31, 1996 and 1995, was $123.4 million and $146.6 million, respectively. (i) During 1996, Met-Ed and Penelec reacquired, pursuant to cash tender offers, preferred shares for a total cost of $7.7 million and $14.4 million, respectively. A reacquisition gain of $3.7 million and $5.6 million was recorded for Met-Ed and Penelec, respectively, which resulted in an increase in GPU, Inc.'s earnings per share of $0.08. During 1994, Met-Ed and Penelec redeemed their 7.68% (aggregate stated value of $35 million) and 8.36% (aggregate stated value of $25 million) cumulative preferred stock, respectively. Met-Ed's total redemption cost was $36 million, which resulted in a $1.2 million charge to Retained Earnings. Penelec's total cost of the redemption was $26 million, resulting in a $1.1 million charge to Retained Earnings. 6. ACQUISITION OF MIDLANDS ELECTRICITY PLC In 1996, GPU, Inc. and Cinergy Corp. (Cinergy) formed Avon Energy Partners Holdings (Holdings), a 50/50 joint venture, to acquire Midlands Electricity plc (Midlands), an English regional electric company. A wholly- owned subsidiary of Holdings, Avon, purchased the outstanding shares of Midlands through a cash tender offer of 1.7 billion pounds, or approximately U.S. $2.6 billion. GPU's 50% interest in Holdings is held by EI UK Holdings, Inc. (EI UK), a wholly-owned subsidiary of GPU Electric, Inc. At December 31, 1996, EI UK has borrowed approximately 342 million pounds, or approximately U.S. $586 million, through a GPU, Inc. guaranteed five-year bank term loan facility, to fund its investment in Holdings. At December 31, 1996, Holdings has borrowed approximately 1.1 billion pounds, or approximately U.S. $1.8 billion, through a term loan and revolving credit facility to provide for the balance of the acquisition price. Midlands supplies and distributes electricity to 2.2 million customers in England in an area with a population of five million. Midlands also owns a F-59 GPU, Inc. and Subsidiary Companies generation business that produces electricity domestically and internationally and a gas supply company that provides natural gas to 8,000 customers in England. In addition, Midlands owns international generation projects and is pursuing additional international generation and transmission projects. EI UK accounts for its 50% investment in Holdings using the equity method of accounting (see Note 7, GPU International Group Equity Investments). Accordingly, EI UK's investment is reported on the Consolidated Balance Sheets in GPU International Group investments, net, and its proportionate share of earnings from Holdings is reflected on the Consolidated Income Statements in Other Income and Deductions. EI UK has recorded its proportionate share of Holdings' income (from the Midlands' acquisition date), which is reflected in GPU's results of operations. The acquisition of Midlands by Avon is accounted for under the purchase method of accounting. The total acquisition cost exceeds the preliminary estimated value of net assets by 1.4 billion pounds, or approximately U.S. $2.1 billion. This excess amount is considered goodwill and is amortized to expense on a straight-line basis over 40 years. 7. GPU INTERNATIONAL GROUP EQUITY INVESTMENTS The GPU International Group has investments in joint ventures and affiliates involved in power production, transmission and distribution in the United States and foreign countries. The GPU International Group uses the equity method of accounting for its investments in which it has the ability to exercise significant influence. Brooklyn Energy, L.P. is being accounted for under the equity method of accounting in anticipation of a reduction of the percentage to 27%. Investments accounted for under the equity method follow: Ownership Investment Location of Operations Percentage Brooklyn Energy, L.P. Canada 75% Avon Energy Partners Holdings (owns Midlands) United Kingdom 50% Solaris Power Australia 50% Prime Energy, L.P. United States 50% Onondaga Cogen, L.P. United States 50% Pasco Cogen, Ltd. United States 50% Lake Cogen, Ltd. United States 50% FPB Cogeneration Partners, L.P. United States 30% Termobarranquilla S.A. Colombia 29% Polsky Energy Corporation United States & Canada 25% Selkirk Cogeneration Partners, L.P. United States 19% EnviroTech Investment Fund United States 10% Ballard Generation Systems, Inc. Canada 6% Project Orange Associates, L.P. United States 4% OLS Power, L.P. United States 1% Summarized financial information for the GPU International Group's equity investments (which are not consolidated in the financial statements), including both the GPU International Group's ownership interests and the non- ownership interests, is as follows: F-60 GPU, Inc. and Subsidiary Companies December 31, December 31, Balance Sheet Data (in thousands) 1996 1995 Current Assets $ 1,016,730 $ 248,012 Noncurrent Assets 5,761,593 1,962,238 Current Liabilities (1,207,038) (220,796) Noncurrent Liabilities (4,080,475) (1,693,669) Net Assets $ 1,490,810 $ 295,785 GPU International Group's Equity in Net Assets $ 735,763 $ 25,341 For the Year Ended December 31, Earnings Data (in thousands) 1996 1995 Revenues $ 1,869,038 $ 680,617 Operating Income $ 299,161 $ 102,817 Net Income/(Loss) $ 70,346 $ (140) GPU International Group's Equity in Net Income/(Loss) $ 33,981 $ (3,597) As of December 31, 1996 and 1995, the amount of investments accounted for under the equity method included goodwill, net of accumulated amortization, of approximately $23 million and $29 million, respectively, which is amortized to expense over periods not exceeding 40 years. Amortization expense amounted to $0.8 million for each of the years ended December 31, 1996 and 1995. In 1996, the GPU International Group recorded a net reduction of $5 million in goodwill attributed primarily to the sale of a partnership interest. In addition, the GPU International Group's 50% ownership interest in Empresa Guaracachi, S.A., a Bolivian electric generating company, is accounted for as a consolidated entity in GPU's financial statements. The GPU International Group also has a 100% ownership interest in Mid-Georgia Cogen, L.P., a cogeneration facility under construction, which is currently accounted for as a consolidated entity in GPU's financial statements. 8. DERIVATIVE FINANCIAL INSTRUMENTS The GPU International Group uses interest rate swap agreements as hedges to manage the risk of increases in interest rates. These swap agreements effectively convert variable-rate debt into fixed-rate debt. At December 31, 1996, these agreements covered approximately $329 million of debt and were scheduled to expire at various dates through 1998. Amounts paid and received under these agreements are recorded as adjustments to the interest expense of the underlying debt. During 1996, fixed interest expense exceeded variable- rate interest by approximately $0.6 million. F-61 GPU, Inc. and Subsidiary Companies 9. INCOME TAXES As of December 31, 1996 and 1995, the Consolidated Balance Sheets reflected income taxes recoverable through future rates (primarily related to liberalized depreciation), and a regulatory liability for income taxes refundable through future rates (related to unamortized ITC), substantially due to the recognition of amounts not previously recorded with the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" in 1993, as follows: (in millions) 1996 1995 Income Taxes Recoverable Through Future Rates: JCP&L $143 $135 Met-Ed 174 179 Penelec 210 214 Total $527 $528 Income Taxes Refundable Through Future Rates: JCP&L $ 33 $ 36 Met-Ed 23 25 Penelec 32 34 Total $ 88 $ 95 Summaries of the components of deferred taxes as of December 31, 1996 and 1995 are as follows: GPU, Inc. and Subsidiary Companies: (in millions) Deferred Tax Assets Deferred Tax Liabilities 1996 1995 1996 1995 Current: Current: Unbilled revenue $ 23 $ 23 Revenue taxes $ 12 $ 16 Other 9 (3) Total $ 32 $ 20 Noncurrent: Noncurrent: Unamortized ITC $ 88 $ 95 Liberalized Decommissioning 75 62 depreciation: Contributions in aid previously flowed of construction 24 23 through $ 292 $ 301 Other 146 150 future revenue Total $333 $330 requirements 203 209 Subtotal 495 510 Liberalized depreciation 859 817 Other 209 139 Total $1,563 $1,466 F-62 GPU, Inc. and Subsidiary Companies JCP&L: (in millions) Deferred Tax Assets Deferred Tax Liabilities 1996 1995 1996 1995 Current: Current: Unbilled revenue $ 18 $ 12 Revenue taxes $ 12 $ 16 Deferred energy 5 (3) Total $ 23 $ 9 Noncurrent: Noncurrent: Unamortized ITC $ 33 $ 36 Liberalized Decommissioning 32 26 depreciation: Contributions in aid previously flowed of construction 19 19 through $ 76 $ 77 Other 55 41 future revenue Total $139 $122 requirements 42 42 Subtotal 118 119 Liberalized depreciation 412 393 Forked River 9 11 Other 125 84 Total $664 $607 Met-Ed: (in millions) Deferred Tax Assets Deferred Tax Liabilities 1996 1995 1996 1995 Noncurrent: Current: Liberalized Unbilled revenue $ 5 $ 6 depreciation: Other 2 2 previously flowed Total $ 7 $ 8 through $ 95 $100 future revenue Noncurrent: requirements 73 76 Unamortized ITC $ 24 $ 25 Decommissioning 28 23 Subtotal 168 176 Contributions in aid Liberalized of construction 2 2 depreciation 185 182 Other 31 41 Other 48 22 Total $ 85 $ 91 Total $401 $380 F-63 GPU, Inc. and Subsidiary Companies Penelec: (in millions) Deferred Tax Assets Deferred Tax Liabilities 1996 1995 1996 1995 Current: Current: Unbilled revenue $ - $ 5 Deferred energy $ - $ 4 Noncurrent: Noncurrent: Unamortized ITC $ 32 $ 34 Liberalized Decommissioning 15 13 depreciation: Contributions in aid previously flowed of construction 3 3 through $119 $121 Other 17 29 future revenue Total $ 67 $ 79 requirements 89 91 Subtotal 208 212 Liberalized depreciation 239 229 Other 26 21 Total $473 $462 The reconciliations from net income to book income subject to tax and from the federal statutory rate to combined federal and state effective tax rates are as follows: GPU, Inc. and Subsidiary Companies: (in millions) 1996 1995 1994 Net income $298 $440 $164 Preferred stock dividends 16 17 21 Gain on preferred stock reacquisition (9) - - Income tax expense 184 265 86 Book income subject to tax $489* $722 $271 Federal statutory rate 35% 35% 35% State tax, net of federal benefit 3 4 - Other - (2) (3) Effective income tax rate 38% 37% 32% * Includes pre-tax foreign operations income of $58 million, of which $54 million relates to equity method investments, which is reflected in Other income, net in the Consolidated Statement of Income. F-64 GPU, Inc. and Subsidiary Companies Federal and state income tax expense is comprised of the following: (in millions) 1996 1995 1994 Provisions for taxes currently payable: Domestic $108 $154 $162 Foreign 11 - - Total provision for taxes $119 $154 $162 Deferred income taxes: Liberalized depreciation 27 31 31 New Jersey revenue tax (3) (2) 32 Deferral of energy costs (8) 1 12 Foreign deferred taxes 7 - - Accretion income 5 5 11 Decommissioning (9) 71 (76) Voluntary Enhanced Retirement Programs (VERP) 15 24 (51) Nonutility generation contract buyout costs 41 15 - Other 2 (23) (21) Deferred income taxes, net 77 122 (62) Amortization of ITC, net (12) (11) (14) Income tax expense $184 $265 $ 86 The foreign taxes in the above table for 1996, which primarily relate to equity method investees, total $17 million ($10 million- Current; $7 million- Deferred), and are included in Other income, net in the Consolidated Statements of Income. JCP&L: The reconciliations from net income to book income subject to tax and from the federal statutory rate to combined federal and state effective tax rates are as follows: (in millions) 1996 1995 1994 Net income $156 $199 $163 Income tax expense 74 97 85 Book income subject to tax $230 $296 $248 Federal statutory rate 35% 35% 35% Other (3) (2) (1) Effective income tax rate 32% 33% 34% F-65 GPU, Inc. and Subsidiary Companies Federal and state income tax expense is comprised of the following: (in millions) 1996 1995 1994 Provisions for taxes currently payable $ 70 $100 $ 50 Deferred income taxes: Liberalized depreciation 1 8 13 Nonutility generation contract buyout costs 22 6 - Gain/Loss on reacquired debt - - 6 New Jersey revenue tax (3) (2) 32 Deferral of energy costs (8) 1 9 Abandonment loss - Forked River (4) (4) (5) Nuclear outage maintenance costs 5 (6) 6 Accretion income 5 5 6 Unbilled revenue (5) (2) 2 Pension expense/VERP 4 3 (15) Other (6) (6) (12) Deferred income taxes, net 11 3 42 Amortization of ITC, net ( 7) ( 6) ( 7) Income tax expense $ 74 $ 97 $ 85 Met-Ed: The reconciliations from net income to book income subject to tax and from the federal statutory rate to combined federal and state effective tax rates are as follows: (in millions) 1996 1995 1994 Net income $ 69 $149 $ 1 Income tax expense 50 92 (9) Book income subject to tax $119 $241 $ (8) Federal statutory rate 35% 35% 35% State tax, net of federal benefit 5 6 32 Amortization of ITC (2) (1) 22 Other 4 (2) 20 Effective income tax rate 42% 38% 109% F-66 GPU, Inc. and Subsidiary Companies Federal and state income tax expense is comprised of the following: (in millions) 1996 1995 1994 Provisions for taxes currently payable $ 25 $ 23 $ 45 Deferred income taxes: Liberalized depreciation 10 10 6 Deferral of energy costs 5 - 6 Decommissioning (3) 46 (52) Pension expense/VERP 5 8 (15) Unbilled revenue - (4) 2 Nonutility generation contract buyout costs 14 8 - Other (4) 3 2 Deferred income taxes, net 27 71 (51) Amortization of ITC, net (2) (2) (3) Income tax expense $ 50 $ 92 $ (9) Penelec: The reconciliations from net income to book income subject to tax and from the federal statutory rate to combined federal and state effective tax rates are as follows: (in millions) 1996 1995 1994 Net income $ 70 $111 $32 Income tax expense 45 70 11 Book income subject to tax $115 $181 $43 Federal statutory rate 35% 35% 35% State tax, net of federal benefit 6 6 1 Other ( 2) ( 2) (10) Effective income tax rate 39% 39% 26% Federal and state income tax expense is comprised of the following: (in millions) 1996 1995 1994 Provisions for taxes currently payable $ 26 $ 28 $ 61 Deferred income taxes: Liberalized depreciation 8 12 12 Deferral of energy costs - - (3) Accretion income - - 5 Decommissioning (1) 21 (24) Pension expense/VERP 7 13 (21) Unbilled revenue 5 (2) - Nonutility generation contract buyout costs 5 - - Other (2) 1 (15) Deferred income taxes, net 22 45 (46) Amortization of ITC, net (3) (3) (4) Income tax expense $ 45 $ 70 $ 11 F-67 GPU, Inc. and Subsidiary Companies In 1994, GPU and the Internal Revenue Service (IRS) reached an agreement to settle GPU's claim for 1986 that TMI-2 has been retired for tax purposes. The GPU Energy companies received net refunds totaling $17 million (JCP&L $4 million; Met-Ed $9 million; Penelec $4 million), which have been credited to their customers. Also in 1994, GPU received net interest from the IRS totaling $46 million (JCP&L $11.5 million; Met-Ed $23 million; Penelec $11.5 million), before income taxes, associated with the refund settlement, which was credited to income. The IRS has completed its examinations of GPU's federal income tax returns through 1992. The years 1993 through 1995 are currently being audited. 10. SUPPLEMENTARY INCOME STATEMENT INFORMATION Maintenance expense and other taxes charged to operating expenses consisted of the following: (in millions) 1996 1995 1994 Maintenance: JCP&L $120 $128 $132 Met-Ed 50 54 59 Penelec 65 71 80 Total Maintenance $235 $253 $271 Other Taxes: New Jersey Unit Tax (JCP&L) $208 $209 $204 Pennsylvania State Gross Receipts: Met-Ed $ 38 $ 35 $ 32 Penelec 40 39 38 Total $ 78 $ 74 $ 70 Real Estate and Personal Property: JCP&L $ 8 $ 8 $ 7 Met-Ed 8 7 6 Penelec 9 8 8 Total $ 25 $ 23 $ 21 Other: JCP&L $ 13 $ 10 $ 20 Met-Ed 15 13 14 Penelec 16 20 20 Total $ 44 $ 43 $ 54 Total Other Taxes $355 $349 $349 F-68 GPU, Inc. and Subsidiary Companies The cost of services rendered to the GPU Energy companies by their affiliates is as follows: (in millions) 1996 1995 1994 JCP&L: Cost of services rendered by GPUN $221 $186 $268 Cost of services rendered by GPUS 44 43 48 Cost of services rendered by Genco 85 - - Total $350 $229 $316 Amount Charged to Income $293 $183 $242 Met-Ed: Cost of services rendered by GPUN $ 67 $ 81 $ 77 Cost of services Rendered by GPUS 29 27 27 Cost of services rendered by Genco 85 - - Total $181 $108 $104 Amount Charged to Income $153 $ 92 $ 87 Penelec: Cost of services rendered by GPUN $ 34 $ 41 $ 40 Cost of services rendered by GPUS 31 38 40 Cost of services rendered by Genco 159 - - Total $224 $ 79 $ 80 Amount Charged to Income $181 $ 67 $ 64 For the years 1996, 1995 and 1994, JCP&L purchased $21 million, $23 million and $22 million, respectively, in energy from a cogeneration project in which an affiliate has a 50% partnership interest. 11. EMPLOYEE BENEFITS Pension Plans GPU maintains defined benefit pension plans covering substantially all employees. GPU's policy is to currently fund net pension costs within the deduction limits permitted by the Internal Revenue Code. Summaries of the components of net periodic pension cost follow: (in millions) GPU, Inc. and Subsidiary Companies 1996 1995 1994 Service cost-benefits earned during the period $ 36.1 $ 30.0 $ 34.8 Interest cost on projected benefit obligation 112.1 109.8 95.4 Less: Expected return on plan assets (123.2) (112.9) (104.4) Amortization (1.1) (1.4) (1.4) Net periodic pension cost $ 23.9 $ 25.5 $ 24.4 F-69 GPU, Inc. and Subsidiary Companies (in millions) JCP&L 1996 1995 1994 Service cost-benefits earned during the period $ 8.0 $ 7.3 $ 8.8 Interest cost on projected benefit obligation 32.1 32.9 29.0 Less: Expected return on plan assets (36.3) (35.2) (33.3) Amortization (0.3) (0.3) (0.5) Net periodic pension cost $ 3.5 $ 4.7 $ 4.0 (in millions) Met-Ed 1996 1995 1994 Service cost-benefits earned during the period $ 4.5 $ 4.4 $ 4.7 Interest cost on projected benefit obligation 19.6 20.2 17.7 Less: Expected return on plan assets (21.3) (20.3) (19.1) Amortization - (0.1) (0.3) Net periodic pension cost $ 2.8 $ 4.2 $ 3.0 (in millions) Penelec 1996 1995 1994 Service cost-benefits earned during the period $ 6.0 $ 8.9 $ 10.2 Interest cost on projected benefit obligation 29.3 34.9 30.6 Less: Expected return on plan assets (32.3) (35.6) (32.4) Amortization 0.3 0.3 0.5 Net periodic pension cost $ 3.3 $ 8.5 $ 8.9 The above amounts for 1996 and 1994 do not include pre-tax charges to earnings of $71 million (JCP&L $37 million; Met-Ed $17 million; Penelec $17 million) and $97 million (JCP&L $38 million; Met-Ed $26 million; Penelec $33 million), respectively, resulting from early retirement programs in both of those years. At December 31, 1996, GPU has funded the entire cost of its retirement programs. The actual return on the plans' assets for the years 1996, 1995 and 1994 resulted in gains as follows: (in millions) Company 1996 1995 1994 JCP&L $ 66.0 $101.3 $ 4.4 Met-Ed 39.6 59.4 2.5 Penelec 53.5 100.3 4.2 Other 69.9 61.0 2.7 Total $229.0 $322.0 $ 13.8 F-70 GPU, Inc. and Subsidiary Companies The funded status of the plans and related assumptions at December 31, 1996 and 1995 were as follows: (in millions) GPU, Inc. and Subsidiary Companies 1996 1995 Accumulated benefit obligation (ABO): Vested benefits $ 1,338.5 $ 1,172.8 Nonvested benefits 137.8 133.7 Total ABO 1,476.3 1,306.5 Effect of future compensation levels 215.1 237.7 Projected benefit obligation (PBO) $ 1,691.4 $ 1,544.2 Plan assets at fair value $ 1,801.8 $ 1,596.1 PBO (1,691.4) (1,544.2) Plan assets in excess of PBO 110.4 51.9 Less: Unrecognized net gain (143.8) (64.9) Unrecognized prior service cost 5.7 5.2 Unrecognized net transition asset (3.0) (5.8) Adjustment required to recognize minimum liability (3.8) (0.2) Accrued pension liability $ (34.5) $ (13.8) (in millions) JCP&L 1996 1995 ABO: Vested benefits $ 391.9 $ 359.8 Nonvested benefits 27.8 30.4 Total ABO 419.7 390.2 Effect of future compensation levels 53.8 69.9 PBO $ 473.5 $ 460.1 Plan assets at fair value $ 514.5 $ 494.4 PBO (473.5) (460.1) Plan assets in excess of PBO 41.0 34.3 Less: Unrecognized net gain (45.7) (32.2) Unrecognized prior service cost 2.2 2.4 Unrecognized net transition asset (1.5) (2.1) (Accrued) prepaid pension cost $ (4.0) $ 2.4 F-71 GPU, Inc. and Subsidiary Companies (in millions) Met-Ed 1996 1995 ABO: Vested benefits $ 240.7 $ 220.9 Nonvested benefits 24.4 24.0 Total ABO 265.1 244.9 Effect of future compensation levels 37.4 42.4 PBO $ 302.5 $ 287.3 Plan assets at fair value $ 309.9 $ 293.1 PBO (302.5) (287.3) Plan assets in excess of PBO 7.4 5.8 Less: Unrecognized net gain (7.1) (7.6) Unrecognized prior service cost 2.8 3.5 Unrecognized net transition asset (0.6) (1.3) Adjustment required to recognize minimum liability (0.4) - Prepaid pension cost $ 2.1 $ 0.4 (in millions) Penelec 1996 1995 ABO: Vested benefits $ 303.6 $ 364.4 Nonvested benefits 24.3 44.1 Total ABO 327.9 408.5 Effect of future compensation levels 39.1 73.3 PBO $ 367.0 $ 481.8 Plan assets at fair value $ 411.8 $ 496.8 PBO (367.0) (481.8) Plan assets in excess of PBO 44.8 15.0 Less: Unrecognized net gain (35.2) (18.8) Unrecognized prior service cost 3.4 3.8 Unrecognized net transition obligation 2.1 3.0 Prepaid pension cost $ 15.1 $ 3.0 Principal actuarial assumptions (%): Annual long-term rate of return on plan assets 8.5 8.5 Discount rate 7.5 7.5 Annual increase in compensation levels 5.5 5.5 F-72 GPU, Inc. and Subsidiary Companies In 1996, the PBO increased by $92 million (JCP&L $28 million; Met-Ed $16 million; Penelec $14 million; Other $34 million) as a result of the VERP. The assets of the plans are held in a Master Trust and generally invested in common stocks and fixed income securities. The unrecognized net gain represents actual experience different from that assumed, which is deferred and not included in the determination of pension cost until it exceeds certain levels. Both the unrecognized prior service cost resulting from retroactive changes in benefits and the unrecognized net transition asset/obligation arising out of the adoption of Statement of Financial Accounting Standards No. 87 (FAS 87), "Employers' Accounting for Pensions," are being amortized to pension cost over the average remaining service periods for covered employees. At December 31, 1996, 1995 and 1994, GPU had accumulated pension obligations in excess of amounts accrued; as a result, additional minimum liabilities in the amounts of $2.2 million (Met-Ed $0.3 million; GPUS $1.8 million; Genco $0.1 million), $0.1 million (GPUS) and $0.7 million (GPUS), respectively, net of deferred income taxes of $1.6 million (Met-Ed $0.2 million; GPUS $1.3 million; Genco $0.1 million), $0.1 million (GPUS) and $0.5 million (GPUS), respectively, are reflected as reductions in Retained Earnings in accordance with FAS 87. Savings Plans GPU also maintains savings plans for substantially all employees. These plans provide for employee contributions up to specified limits. GPU's savings plans provide for various levels of matching contributions. The matching contributions for GPU were as follows: (in millions) Company 1996 1995 1994 JCP&L $ 2.8 $ 3.2 $ 2.4 Met-Ed 3.2 2.7 2.2 Penelec 1.4 2.5 3.0 Other 6.7 5.0 5.1 Total $ 14.1 $ 13.4 $ 12.7 Postretirement Benefits Other Than Pensions GPU provides certain retiree health care and life insurance benefits for substantially all employees who reach retirement age while working for GPU. Health care benefits are administered by various organizations. A portion of the costs are borne by the participants. Effective January 1, 1993, GPU adopted Statement of Financial Accounting Standards No. 106 (FAS 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions." FAS 106 requires that the estimated cost of these benefits, which are primarily for health care, be accrued during the employee's active working career. GPU has elected to amortize the unfunded transition obligation existing at January 1, 1993 over a period of 20 years. The unrecognized net loss represents actual experience different from that assumed, which is deferred and not included in the determination of postretirement benefit cost until it exceeds certain levels. The unrecognized prior service cost resulting from retroactive changes in benefits is being amortized to postretirement benefit cost over the average remaining service periods for covered employees. F-73 GPU, Inc. and Subsidiary Companies Summaries of the components of the net periodic postretirement benefit cost for 1996, 1995 and 1994 follows: (in millions) GPU, Inc. and Subsidiary Companies 1996 1995 1994 Service cost-benefits attributed to service during the period $ 14.3 $ 13.4 $ 14.6 Interest cost on the accumulated postretirement benefit obligation 45.7 43.4 37.0 Expected return on plan assets (13.8) (11.0) (7.0) Amortization of transition obligation 17.4 17.4 18.1 Other amortization, net 2.9 1.3 2.1 Net periodic postretirement benefit cost 66.5 64.5 64.8 Less, deferred for future recovery (18.2) (15.0) (15.8) Postretirement benefit cost, net of deferrals $ 48.3 $ 49.5 $ 49.0 The above amounts for 1996 and 1994 do not include pre-tax charges to earnings of $52 million and $30 million, respectively, relating to early retirement programs in both of those years. At December 31, 1996, GPU has funded the entire cost of its retirement programs. (in millions) JCP&L 1996 1995 1994 Service cost-benefits attributed to service during the period $ 2.8 $ 3.0 $ 3.3 Interest cost on the accumulated postretirement benefit obligation 11.4 11.2 9.4 Expected return on plan assets (2.8) (2.3) (1.7) Amortization of transition obligation 4.8 5.0 5.2 Other amortization, net 0.7 0.5 0.4 Net periodic postretirement benefit cost 16.9 17.4 16.6 Less, deferred for future recovery (4.4) (4.0) ( 7.8) Postretirement benefit cost, net of deferrals $ 12.5 $ 13.4 $ 8.8 The above amounts for 1996 and 1994 do not include pre-tax charges to earnings of $26 million and $9 million, respectively, relating to early retirement programs in both of those years. The amount deferred for future recovery does not include $7.2 million of allocated postretirement benefit costs from affiliates for 1996. F-74 GPU, Inc. and Subsidiary Companies (in millions) Met-Ed 1996 1995 1994 Service cost-benefits attributed to service during the period $ 1.9 $ 2.0 $ 2.3 Interest cost on the accumulated postretirement benefit obligation 8.6 8.3 7.1 Expected return on plan assets (1.6) (1.4) (1.2) Amortization of transition obligation 3.2 3.4 3.4 Other amortization, net 0.7 0.3 0.5 Net periodic postretirement benefit cost 12.8 12.6 12.1 Less, deferred for future recovery (4.1) (5.6) (8.3) Postretirement benefit cost, net of deferrals $ 8.7 $ 7.0 $ 3.8 The above amounts for 1996 and 1994 do not include a pre-tax charge to earnings of $13 million and $9 million, respectively, relating to early retirement programs in both of those years. The amount deferred for future recovery does not include $2.5 million of allocated postretirement benefit costs from affiliates for 1996. (in millions) Penelec 1996 1995 1994 Service cost-benefits attributed to service during the period $ 2.7 $ 4.3 $ 4.6 Interest cost on the accumulated postretirement benefit obligation 14.1 15.6 13.4 Expected return on plan assets (4.6) (4.3) (2.3) Amortization of transition obligation 5.4 6.2 6.5 Other amortization, net 0.9 0.5 0.8 Net periodic postretirement benefit cost 18.5 22.3 23.0 Net write-off - 1.3 9.0 Postretirement benefit cost $ 18.5 $ 23.6 $ 32.0 The above amounts for 1996 and 1994 do not include a pre-tax charge to earnings of $13 million and $12 million, respectively, relating to early retirement programs in both of those years. The actual return on the plans' assets for the years 1996, 1995 and 1994 resulted in gains as follows: (in millions) Company 1996 1995 1994 JCP&L $ 8.0 $ 5.7 $ 0.6 Met-Ed 3.6 3.3 0.4 Penelec 14.7 11.1 0.8 Other 12.3 7.8 0.5 Total $ 38.6 $ 27.9 $ 2.3 F-75 GPU, Inc. and Subsidiary Companies The funded status of the plans at December 31, 1996 and 1995, was as follows: (in millions) GPU, Inc. and Subsidiary Companies 1996 1995 Accumulated Postretirement Benefit Obligation: Retirees $ 452.7 $ 361.6 Fully eligible active plan participants 17.1 32.4 Other active plan participants 236.2 232.4 Total accumulated postretirement benefit obligation (APBO) $ 706.0 $ 626.4 APBO $(706.0) $(626.4) Plan assets at fair value 303.6 191.3 APBO in excess of plan assets (402.4) (435.1) Less: Unrecognized net loss 56.6 65.0 Unrecognized prior service cost 1.9 2.3 Unrecognized transition obligation 268.6 295.9 Accrued postretirement benefit liability $ (75.3) $ (71.9) (in millions) JCP&L 1996 1995 APBO: Retirees $ 120.2 $ 89.2 Fully eligible active plan participants 7.7 18.9 Other active plan participants 52.0 53.4 Total APBO $ 179.9 $ 161.5 APBO $(179.9) $(161.5) Plan assets at fair value 70.7 39.7 APBO in excess of plan assets (109.2) (121.8) Less: Unrecognized net loss 14.1 12.9 Unrecognized transition obligation 74.4 85.3 Accrued postretirement benefit liability $ (20.7) $ (23.6) (in millions) Met-Ed 1996 1995 APBO: Retirees $ 84.7 $ 80.2 Fully eligible active plan participants 2.1 3.5 Other active plan participants 37.4 39.2 Total APBO $ 124.2 $ 122.9 APBO $(124.2) $(122.9) Plan assets at fair value 34.7 21.9 APBO in excess of plan assets (89.5) (101.0) Less: Unrecognized net loss 19.6 17.7 Unrecognized transition obligation 44.7 57.4 Accrued postretirement benefit liability $ (25.2) $ (25.9) F-76 GPU, Inc. and Subsidiary Companies (in millions) Penelec 1996 1995 APBO: Retirees $ 145.5 $ 139.7 Fully eligible active plan participants 3.7 6.0 Other active plan participants 54.8 79.6 Total APBO $ 204.0 $ 225.3 APBO $(204.0) $(225.3) Plan assets at fair value 95.6 75.3 APBO in excess of plan assets (108.4) (150.0) Less: Unrecognized net loss 13.2 25.0 Unrecognized prior service cost 1.6 2.3 Unrecognized transition obligation 83.2 106.1 Accrued postretirement benefit liability $ (10.4) $ (16.6) Principal actuarial assumptions (%): Annual long-term rate of return on plan assets 8.5 8.5 Discount rate 7.5 7.5 GPU intends to continue funding amounts for postretirement benefits with an independent trustee, as deemed appropriate from time to time. The plan assets include equities and fixed income securities. In 1996, the APBO increased by $45 million (JCP&L $15 million; Met-Ed $8 million; Penelec $8 million; Other $14 million) as a result of the VERP. The APBO was determined by application of the terms of the medical and life insurance plans, including the effects of established maximums on covered costs, together with relevant actuarial assumptions and health-care cost trend rates of 11% for those not eligible for Medicare and 8% for those eligible for Medicare, then decreasing gradually to 6% in 2000 and thereafter. These costs also reflect the implementation of a cost cap of 6% for individuals who retire after December 31, 1995 and reach age 65. The effect of a 1% annual increase in these assumed cost trend rates would increase the APBO by approximately $60 million (JCP&L $14 million; Met-Ed $10 million; Penelec $16 million; Other $20 million) as of December 31, 1996 and the aggregate of the service and interest cost components of net periodic postretirement health-care cost by approximately $5 million (JCP&L $1 million; Met-Ed $1 million; Penelec $2 million; Other $1 million). In JCP&L's 1993 base rate proceeding, the NJBPU allowed JCP&L to collect $3 million annually of the incremental postretirement benefit costs, charged to expense, recognized as a result of FAS 106. Based on the final order and in accordance with Emerging Issues Task Force (EITF) Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises," JCP&L is deferring the amounts above that level. A Stipulation of Final Settlement (Final Settlement), pending before the NJBPU, would allow JCP&L to recover and amortize the deferred balance at December 31, 1997 over a fifteen-year period. In addition, the Final Settlement would allow JCP&L to recover current amounts accrued pursuant to FAS 106, including amortization of the transition obligation. (See discussion of the Final Settlement in Rate Matters, Management's Discussion and Analysis.) In January 1997, the NJBPU issued a generic order providing certain options for recovery of postretirement costs. This generic order would affect JCP&L only if the Final Settlement is not F-77 GPU, Inc. and Subsidiary Companies approved. Met-Ed is deferring the incremental postretirement benefit costs, charged to expense, associated with the adoption of FAS 106 and in accordance with EITF Issue 92-12, as authorized by the PaPUC in its 1993 base rate order. In 1994, the Pennsylvania Commonwealth Court reversed a PaPUC order that allowed a nonaffiliated utility, outside a base rate proceeding, to defer certain incremental postretirement benefit costs for future recovery from customers. As a result of the Court's decision, in 1994, Penelec determined that its FAS 106 costs, including costs deferred since January 1993, were not likely to be recovered and charged $18.8 million to expense. In addition, $4 million of Penelec's unrecognized transition obligation resulting from employees who elected to participate in the VERP was also written off in 1994. In 1996 and 1995, Penelec recorded charges to income of approximately $12 million and $9 million, respectively, which represent continued amortization of the transition obligation along with current accruals of FAS 106 expense for active employees. 12. JOINTLY OWNED STATIONS Each participant in a jointly owned station finances its portion of the investment and charges its share of operating expenses to the appropriate expense accounts. The GPU Energy companies participated with nonaffiliated utilities in the following jointly owned stations at December 31, 1996: Balance (in millions) % Accumulated Station Owner Ownership Investment Depreciation Homer City Penelec 50 $453.7 $157.3 Conemaugh Met-Ed 16.45 146.1 40.7 Keystone JCP&L 16.67 90.3 22.5 Yards Creek JCP&L 50 29.9 6.5 Seneca Penelec 20 16.0 5.1 13. LEASES GPU's capital leases consist primarily of leases for nuclear fuel. Nuclear fuel capital leases at December 31, 1996 totaled $139 million (JCP&L $95 million; Met-Ed $29 million; Penelec $15 million), net of amortization of $208 million (JCP&L $124 million; Met-Ed $56 million; Penelec $28 million). Nuclear fuel capital leases at December 31, 1995 totaled $152 million (JCP&L $88 million; Met-Ed $43 million; Penelec $21 million), net of amortization of $160 million (JCP&L $98 million; Met-Ed $41 million; Penelec $21 million). The recording of capital leases has no effect on net income because all leases, for ratemaking purposes, are considered operating leases. F-78 GPU, Inc. and Subsidiary Companies The GPU Energy companies have nuclear fuel lease agreements with nonaffiliated fuel trusts. In 1995, the GPU Energy companies refinanced the Oyster Creek and TMI-1 nuclear fuel leases to provide for aggregate borrowings of up to $210 million ($100 million for Oyster Creek and $110 million for TMI-1) outstanding at any one time. Reductions in nuclear fuel financing costs are expected through the new credit facilities. It is contemplated that when consumed, portions of the presently leased material will be replaced by additional leased material. The GPU Energy companies are responsible for the disposal costs of nuclear fuel leased under these agreements. These nuclear fuel leases have initial terms of three years expiring in November 1998, and are renewable annually thereafter at the lender's option for a period up to 20 years. Subject to certain conditions of termination, the GPU Energy companies are required to purchase all nuclear fuel then under lease at a price that will allow the lessor to recover its net investment. Lease expense consists of an amount designed to amortize the cost of the nuclear fuel as consumed plus interest costs. For the years ended December 31, 1996, 1995 and 1994, these amounts were as follows: (in millions) Company 1996 1995 1994 JCP&L $ 32 $ 35 $ 28 Met-Ed 16 15 15 Penelec 8 7 7 Total $ 56 $ 57 $ 50 JCP&L and Met-Ed have sold and leased back substantially all of their respective ownership interests in the Merrill Creek Reservoir project. The minimum lease payments under these operating leases, which have remaining terms of 36 years, average approximately $3 million annually for each company. 14. COMMITMENTS AND CONTINGENCIES NUCLEAR FACILITIES The GPU Energy companies have made investments in three major nuclear projects--TMI-1 and Oyster Creek, both of which are operating generation facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and TMI-2 are jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively. Oyster Creek is owned by JCP&L. At December 31, 1996 and December 31, 1995, the GPU Energy companies' net investment in TMI-1 and Oyster Creek, including nuclear fuel, was as follows: Net Investment (in millions) TMI-1 Oyster Creek 1996 JCP&L $154 $766 Met-Ed 297 - Penelec 146 - Total $597 $766 F-79 GPU, Inc. and Subsidiary Companies Net Investment (in millions) TMI-1 Oyster Creek 1995 JCP&L $166 $782 Met-Ed 318 - Penelec 156 - Total $640 $782 The GPU Energy companies' net investment in TMI-2 at December 31, 1996 and 1995 was $90 million and $95 million, respectively (JCP&L $81 million and $85 million, respectively; Met-Ed $1 million and $2 million, respectively; Penelec $8 million in both years). JCP&L is collecting revenues for TMI-2 on a basis which provides for the recovery of its remaining investment in the plant by 2008. Met-Ed and Penelec are collecting revenues for TMI-2 related to their wholesale customers. Costs associated with the operation, maintenance and retirement of nuclear plants have continued to be significant and less predictable than costs associated with other sources of generation, in large part due to changing regulatory requirements, safety standards, availability of nuclear waste disposal facilities and experience gained in the construction and operation of nuclear facilities. The GPU Energy companies may also incur costs and experience reduced output at their nuclear plants because of the prevailing design criteria at the time of construction and the age of the plants' systems and equipment. In addition, for economic or other reasons, operation of these plants for the full term of their operating licenses cannot be assured. Also, not all risks associated with the ownership or operation of nuclear facilities may be adequately insured or insurable. Consequently, the recovery of costs associated with nuclear projects, including replacement power, any unamortized investment at the end of each plant's useful life (whether scheduled or premature), the carrying costs of that investment and retirement costs, is not assured. (See the Competition and the Changing Regulatory Environment section.) TMI-2: The 1979 TMI-2 accident resulted in significant damage to, and contamination of, the plant and a release of radioactivity to the environment. A cleanup program was completed in 1990, and after receiving Nuclear Regulatory Commission (NRC) approval, TMI-2 entered into long-term monitored storage in 1993. As a result of the accident and its aftermath, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, have been asserted against GPU, Inc. and the GPU Energy companies. Approximately 2,100 of such claims were filed in the United States District Court for the Middle District of Pennsylvania. Some of the claims also seek recovery for injuries from alleged emissions of radioactivity before and after the accident. At the time of the TMI-2 accident, as provided for in the Price-Anderson Act, the GPU Energy companies had (a) primary financial protection in the form F-80 GPU, Inc. and Subsidiary Companies of insurance policies with groups of insurance companies providing an aggregate of $140 million of primary coverage, (b) secondary financial protection in the form of private liability insurance under an industry retrospective rating plan providing for up to an aggregate of $335 million in premium charges under such plan, and (c) an indemnity agreement with the NRC for up to $85 million, bringing their total financial protection up to an aggregate of $560 million. Under the secondary level, the GPU Energy companies are subject to a retrospective premium charge of up to $5 million per reactor, or a total of $15 million (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5 million). In October 1995, the U.S. Court of Appeals for the Third Circuit ruled that the Price-Anderson Act provides coverage under its primary and secondary levels for punitive as well as compensatory damages, but that punitive damages could not be recovered against the Federal Government under the third level of financial protection. In so doing, the Court of Appeals referred to the "finite fund" (the $560 million of financial protection under the Price- Anderson Act) to which plaintiffs must resort to get compensatory as well as punitive damages. The Court of Appeals also ruled that the standard of care owed by the defendants to a plaintiff was determined by the specific level of radiation which was released into the environment, as measured at the site boundary, rather than as measured at the specific site where the plaintiff was located at the time of the accident (as the defendants proposed). The Court of Appeals also held that each plaintiff still must demonstrate exposure to radiation released during the TMI-2 accident and that such exposure had resulted in injuries. In 1996, the U.S. Supreme Court denied petitions filed by GPU, Inc. and the GPU Energy companies to review the Court of Appeals' rulings. In June 1996, the District Court granted a motion for summary judgment filed by GPU, Inc. and the GPU Energy companies, and dismissed all of the 2,100 pending claims. The Court ruled that there was no evidence which created a genuine issue of material fact warranting submission of plaintiffs' claims to a jury. The plaintiffs have appealed the District Court's ruling to the Court of Appeals for the Third Circuit. There can be no assurance as to the outcome of this litigation. Based on the above, GPU, Inc. and the GPU Energy companies believe that any liability to which they might be subject by reason of the TMI-2 accident will not exceed their financial protection under the Price-Anderson Act. NUCLEAR PLANT RETIREMENT COSTS Retirement costs for nuclear plants include decommissioning the radiological portions of the plants and the cost of removal of nonradiological structures and materials. As described in the Nuclear Fuel Disposal Fee section of Note 1, the disposal of spent nuclear fuel is covered separately by contracts with the DOE. In 1990, the GPU Energy companies submitted a report, in compliance with F-81 GPU, Inc. and Subsidiary Companies NRC regulations, setting forth a funding plan (employing the external sinking fund method) for the decommissioning of their nuclear reactors. Under this plan, the GPU Energy companies intend to complete the funding for Oyster Creek and TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2 funding completion date is 2014, consistent with TMI-2's remaining in long-term storage and being decommissioned at the same time as TMI-1. Based on NRC studies, a comparable funding target was developed for TMI-2 which took the accident into account. Under the NRC regulations, the funding targets (in 1996 dollars) are as follows: (in millions) Oyster TMI-1 TMI-2 Creek JCP&L $ 43 $ 67 $221 Met-Ed 85 135 - Penelec 42 68 - $170 $270 $221 The funding targets, while not considered cost estimates, are reference levels designed to assure that licensees demonstrate adequate financial responsibility for decommissioning. While the NRC regulations address activities related to the removal of the radiological portions of the plants, they do not establish residual radioactivity limits nor do they address costs related to the removal of nonradiological structures and materials. In 1995, a consultant to GPUN performed site-specific studies of the TMI site, including both Units 1 and 2, and of Oyster Creek, that considered various decommissioning methods and estimated the cost of decommissioning the radiological portions and the cost of removal of the nonradiological portions of each plant, using the prompt removal/dismantlement method. GPUN management has reviewed the methodology and assumptions used in these studies, is in agreement with them, and believes the results are reasonable. The retirement cost estimates under the site-specific studies are as follows (in 1996 dollars): (in millions) Oyster GPU TMI-1 TMI-2 Creek Radiological decommissioning $311 $378 $366 Nonradiological cost of removal 77 36 * 35 Total $388 $414 $401 * Net of $6.5 million spent as of December 31, 1996. (in millions) Oyster JCP&L TMI-1 TMI-2 Creek Radiological decommissioning $ 78 $ 95 $366 Nonradiological cost of removal 19 9 * 35 Total $ 97 $104 $401 * Net of $1.6 million spent as of December 31, 1996. F-82 GPU, Inc. and Subsidiary Companies (in millions) Met-Ed TMI-1 TMI-2 Radiological decommissioning $155 $189 Nonradiological cost of removal 39 18 * Total $194 $207 * Net of $3.3 million spent as of December 31, 1996. (in millions) Penelec TMI-1 TMI-2 Radiological decommissioning $ 78 $ 94 Nonradiological cost of removal 19 9 * Total $ 97 $103 * Net of $1.6 million spent as of December 31, 1996. The ultimate cost of retiring the GPU Energy companies' nuclear facilities may be different from the cost estimates contained in these site- specific studies. Such costs are subject to (a) the escalation of various cost elements (for reasons including, but not limited to, general inflation), (b) the further development of regulatory requirements governing decommissioning, (c) the technology available at the time of decommissioning, and (d) the availability of nuclear waste disposal facilities. The GPU Energy companies charge to depreciation expense and accrue retirement costs based on amounts being collected from customers. Currently, the GPU Energy companies are collecting retirement costs which are less than the retirement cost estimates in the 1995 site-specific studies, and they do not intend to increase these accruals until increased collections from customers are obtained. Customer collections are contributed to external trust funds. These deposits, including the related earnings, are classified as Nuclear Decommissioning Trusts on the Balance Sheets. Accounting for retirement costs may change based upon the Financial Accounting Standards Board (FASB) Exposure Draft discussed below. The FASB has issued an Exposure Draft titled "Accounting for Certain Liabilities Related to Closure or Removal of Long-Lived Assets," which includes nuclear plant retirement costs. If the Exposure Draft is adopted, Oyster Creek and TMI-1 future retirement costs would have to be recognized as a liability immediately, rather than the current industry practice of accruing these costs in accumulated depreciation over the life of the plants. A regulatory asset for amounts probable of recovery through rates would also be established. Any amounts not probable of recovery through rates would have to be charged to expense. For TMI-2, a liability has already been recognized, based on the 1995 site-specific study (in 1996 dollars) since the plant is no longer operating (see TMI-2). The effective date of this accounting change could be as early as January 1, 1998. F-83 GPU, Inc. and Subsidiary Companies TMI-1 and Oyster Creek: The NJBPU has granted JCP&L annual revenues for TMI-1 and Oyster Creek retirement costs of $2.5 million and $13.5 million, respectively. These annual revenues are based on both the NRC funding targets for radiological decommissioning costs and a site-specific study which was performed in 1988 for nonradiological costs of removal. The Final Settlement pending before the NJBPU would allow for JCP&L's future collection of retirement costs to increase annually to $5.2 million and $22.5 million for TMI-1 and Oyster Creek, respectively, beginning in 1998, based on the 1995 site-specific study estimates. (See discussion of Final Settlement in Rate Matters, Management's Discussion and Analysis.) The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs of $8.5 million based on both the NRC funding target for radiological decommissioning costs and the 1988 site-specific study for nonradiological costs of removal. The PaPUC also granted Penelec annual revenues of $4.2 million for its share of TMI-1 retirement costs, on a basis consistent with that granted Met-Ed. The amounts charged to depreciation expense in 1996 and the provisions for the future expenditure of these funds, which have been made in accumulated depreciation, are as follows: (in millions) Oyster TMI-1 Creek Amount expensed in 1996: JCP&L $ 2 $ 13 Met-Ed 9 - Penelec 4 - $ 15 $ 13 (in millions) Oyster TMI-1 Creek Accumulated depreciation provision at December 31, 1996: JCP&L $ 30 $174 Met-Ed 50 - Penelec 21 - $101 $174 Management believes that any TMI-1 and Oyster Creek retirement costs, in excess of those currently recognized for ratemaking purposes, should be recoverable under the current ratemaking process. TMI-2: The estimated liabilities for TMI-2 future retirement costs (reflected as Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of December 31, are as follows: F-84 GPU, Inc. and Subsidiary Companies (in millions) GPU JCP&L Met-Ed Penelec 1996 $431 $108 $215 $108 1995 $413 $103 $207 $103 These amounts are based upon the 1995 site-specific study estimates (in 1996 and 1995 dollars, respectively) discussed above and an estimate for remaining incremental monitored storage costs of $17 million (JCP&L $4 million; Met-Ed $8 million; Penelec $5 million) for 1996 and $18 million (JCP&L $4 million; Met-Ed $9 million; Penelec $5 million) for 1995, as a result of TMI-2's entering long-term monitored storage in 1993. The GPU Energy companies are incurring annual incremental monitored storage costs of approximately $1 million (JCP&L $250 thousand; Met-Ed $500 thousand; Penelec $250 thousand). Offsetting the $431 million liability at December 31, 1996 is $266 million (JCP&L $45 million; Met-Ed $143 million; Penelec $78 million) which is probable of recovery from customers and included in Three Mile Island Unit 2 deferred costs on the Consolidated Balance Sheets, and $181 million (JCP&L $72 million; Met-Ed $78 million; Penelec $31 million) in trust funds for TMI-2 and included in Nuclear decommissioning trusts on the Consolidated Balance Sheets. Earnings on trust fund deposits are included in amounts shown on the Consolidated Balance Sheets under Three Mile Island Unit 2 deferred costs. TMI-2 decommissioning costs charged to depreciation expense in 1996 amounted to $14 million (JCP&L $3 million; Met-Ed $10 million; Penelec $1 million). The NJBPU and PaPUC have granted JCP&L and Met-Ed, respectively, TMI-2 decommissioning revenues for the NRC funding target and allowances for the cost of removal of nonradiological structures and materials. In addition, JCP&L is recovering its share of TMI-2's incremental monitored storage costs. The Final Settlement pending before the NJBPU would adjust JCP&L's future revenues for retirement costs based on the 1995 site-specific study estimates, beginning in 1998. Based on Met-Ed's rate order, Penelec has recorded a regulatory asset for that portion of such costs which it believes to be probable of recovery. At December 31, 1996 the accident-related portion of TMI-2 radiological decommissioning costs is considered to be $67 million (JCP&L $17 million, Met- Ed $34 million; Penelec $16 million), which is the difference between the 1995 TMI-1 and TMI-2 site-specific study estimates (in 1996 dollars). In connection with rate case resolutions at the time, JCP&L, Met-Ed and Penelec made contributions to irrevocable external trusts relating to their shares of the accident-related portions of the decommissioning liability. In 1990, JCP&L contributed $15 million and in 1991, Met-Ed and Penelec contributed $40 million and $20 million, respectively, to irrevocable external trusts. These contributions were not recovered from customers and have been expensed. The GPU Energy companies will not pursue recovery from customers for any of these amounts contributed in excess of the $67 million accident-related portion referred to above. JCP&L intends to seek recovery for any increases in TMI-2 retirement costs, and Met-Ed and Penelec intend to seek recovery for any increases in the nonaccident-related portion of such costs, but recognize that recovery cannot be assured. F-85 GPU, Inc. and Subsidiary Companies INSURANCE GPU has insurance (subject to retentions and deductibles) for its operations and facilities including coverage for property damage, liability to employees and third parties, and loss of use and occupancy (primarily incremental replacement power costs). There is no assurance that GPU will maintain all existing insurance coverages. Losses or liabilities that are not completely insured, unless allowed to be recovered through ratemaking, could have a material adverse effect on the financial position of GPU. The decontamination liability, premature decommissioning and property damage insurance coverage for the TMI station and for Oyster Creek totals $2.7 billion per site. In accordance with NRC regulations, these insurance policies generally require that proceeds first be used for stabilization of the reactors and then to pay for decontamination and debris removal expenses. Any remaining amounts available under the policies may then be used for repair and restoration costs and decommissioning costs. Consequently, there can be no assurance that in the event of a nuclear incident, property damage insurance proceeds would be available for the repair and restoration of that station. The Price-Anderson Act limits GPU's liability to third parties for a nuclear incident at one of its sites to approximately $8.9 billion. Coverage for the first $200 million of such liability is provided by private insurance. The remaining coverage, or secondary financial protection, is provided by retrospective premiums payable by all nuclear reactor owners. Under secondary financial protection, a nuclear incident at any licensed nuclear power reactor in the country, including those owned by the GPU Energy companies, could result in assessments of up to $79 million per incident for each of the GPU Energy companies' two operating reactors, subject to an annual maximum payment of $10 million per incident per reactor. In addition to the retrospective premiums payable under Price-Anderson, the GPU Energy companies are also subject to retrospective premium assessments of up to $54 million (JCP&L $32 million; Met-Ed $15 million; Penelec $7 million) in any one year under insurance policies applicable to nuclear operations and facilities. The GPU Energy companies have insurance coverage for incremental replacement power costs resulting from an accident-related outage at their nuclear plants. Coverage commences after the first 21 weeks of the outage and continues for three years beginning at $1.8 million for Oyster Creek and $2.6 million for TMI-1 per week for the first year, decreasing to 80% of such amounts for years two and three. COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT The Emerging Competitive Market and Stranded Costs: The combination of the current market price of electricity being below that of utility-owned generation and purchase power commitments, as well as the ability of some customers to choose their energy suppliers has created the potential for stranded costs in the electric utility industry. These stranded costs, while recoverable in a regulated environment, are at risk in a deregulated and competitive environment. The GPU Energy companies estimate that their total potential above market costs relating to power purchase F-86 GPU, Inc. and Subsidiary Companies commitments, above market generation costs, generating plant decommissioning costs and regulatory assets at year end 1998, on a present value basis, could range from $4.5 billion to $8 billion (JCP&L $2.5 billion to $4 billion; Met- Ed $1 billion to $2 billion; Penelec $1 billion to $2 billion). The estimate is subject to significant uncertainties including the future market price of both electricity and other competitive energy sources, as well as the timing of when these above market costs become stranded due to customers choosing another supplier. The restructuring legislation in Pennsylvania and the proposed restructuring plan in New Jersey provide mechanisms for utilities to recover, subject to regulatory approval, their above market costs. These regulatory recovery mechanisms in Pennsylvania and New Jersey will differ, but should allow for the recovery of non-mitigable above market costs through either distribution charges or separate nonbypassable charges to customers. In 1996, FERC issued Order 888, which permits electric utilities to recover their legitimate and verifiable stranded costs incurred when a wholesale customer purchases power from another supplier using the utility's transmission system. In addition, Pennsylvania adopted comprehensive legislation in 1996 which provides for the restructuring of the electric utility industry and will permit utilities the opportunity to recover their prudently incurred stranded costs through a PaPUC-approved competitive transition charge, subject to certain conditions, including that utilities attempt to mitigate these costs. In 1997, the NJBPU released Phase II of the New Jersey Energy Master Plan (NJEMP), which proposes that New Jersey electric utilities should have an opportunity to recover their stranded costs associated with generating capacity commitments and caused by electric retail competition, provided that they attempt to mitigate these costs. There can be no assurance as to the extent that stranded costs will be recoverable. The inability of the GPU Energy companies to recover their stranded costs in whole or in part could result in the recording of liabilities for above market nonutility generation (NUG) costs and writedowns of uneconomic generation plant and regulatory assets recorded in accordance with FAS 71. Decommissioning costs, for which a liability and corresponding regulatory asset is recorded for amounts recoverable from customers, could also be subject to writedowns. The inability to recover these stranded costs would have a material adverse effect on GPU's results of operations. (See additional discussion of stranded costs in Competitive Environment, Management's Discussion and Analysis). Nonutility Generation Agreements: Pursuant to the requirements of the federal Public Utility Regulatory Policies Act (PURPA) and state regulatory directives, the GPU Energy companies have entered into power purchase agreements with NUGs for the purchase of energy and capacity for periods of up to 26 years (JCP&L 25 years; Met-Ed 26 years; Penelec 25 years). The following table shows actual payments from 1994 through 1996, and estimated payments from 1997 through 2001. F-87 GPU, Inc. and Subsidiary Companies Payments Under NUG Agreements (in Millions) Total JCP&L Met-Ed Penelec * 1994 $528 $304 $101 $123 * 1995 670 381 131 158 * 1996 739 370 177 192 1997 672 336 146 190 1998 691 340 152 199 1999 706 344 152 210 2000 804 347 196 261 2001 873 353 225 295 * Actual. The 1996 amounts are reflected in the rates currently being charged by the GPU Energy companies. While a few of these facilities are dispatchable, most are must-run and generally obligate the GPU Energy companies to purchase, at the contract price, the output up to the contract limits. As of December 31, 1996, facilities covered by these agreements having 1,631 MW (JCP&L 891 MW; Met-Ed 340 MW; Penelec 400 MW) of capacity were in service. The emerging competitive generation market has created uncertainty regarding the forecasting of the companies' energy supply needs, which has caused the GPU Energy companies to change their supply strategy to seek shorter-term agreements offering more flexibility. The cost of near- to intermediate-term (i.e., one to four years) energy supply from generation facilities now in service is currently and is expected to continue to be priced below the costs of new supply sources, at least for some time. The projected cost of energy from new generation supply sources has also decreased due to improvements in power plant technologies and lower forecasted fuel prices. As a result of these developments, the rates under virtually all of the GPU Energy companies' NUG agreements for facilities currently in operation are substantially in excess of current and projected prices from alternative sources. The GPU Energy companies are seeking to reduce the above market costs of these NUG agreements by: (1) attempting to convert must-run agreements to dispatchable agreements; (2) attempting to renegotiate prices of the agreements; (3) offering contract buyouts (see Managing Nonutility Generation, Management's Discussion and Analysis); and (4) initiating proceedings before federal and state agencies, and in the courts, where appropriate. In addition, the GPU Energy companies intend to avoid, to the maximum extent practicable, entering into any new NUG agreements that are not needed or not consistent with current market pricing, and are supporting legislative efforts to repeal PURPA. These efforts may result in claims against GPU for substantial damages. There can be no assurance as to the extent these efforts will be successful in whole or in part. From 1997 through 2002, JCP&L has contracts to purchase between 5,100 GWH and 5,200 GWH of electric generation per year at prices which are estimated to escalate approximately 1.2% annually on a unit cost (cents/KWH) basis during this period. From 2003 through 2008, JCP&L has contracts to purchase between 4,700 GWH and 5,100 GWH of electric generation per year at an average annual F-88 GPU, Inc. and Subsidiary Companies cost of $369 million. The prices during this period are estimated to escalate approximately 1.5% annually. After 2008, when major contracts begin to expire, purchases steadily decline to approximately 865 GWH in 2014. The contract unit cost is estimated to escalate approximately 4.0% annually from 2009 through 2014, with a total average annual cost of $193 million during this period. All of JCP&L's contracts will have expired by the end of 2017. During this entire period, the NUG fuel mix averages approximately 95% natural gas. From 1997 through 1999, Met-Ed has contracts to purchase between 2,000 GWH and 2,100 GWH of electric generation per year at prices which are estimated to escalate approximately 0.6% annually on a unit cost basis during this period. From 2000 through 2008, Met-Ed has contracts to purchase between 2,900 GWH and 4,300 GWH of electric generation per year at an average annual cost of $241 million. The prices during this period are estimated to escalate approximately 2.5% annually on a unit cost basis. From 2009 through 2012, Met-Ed is forecast to purchase between 1,500 GWH and 1,900 GWH of electric generation per year at an average annual cost of $169 million. During this period, the prices are estimated to escalate approximately 3.4% annually on a unit cost basis. After 2012, Met-Ed's remaining contracts expire rapidly through 2015; thereafter, they remain constant until the expiration of the last contract in 2020. During this entire period, the NUG fuel mix averages approximately 50% to 75% coal/waste coal. From 1997 through 2000, Penelec has contracts to purchase between 3,000 GWH and 4,000 GWH of electric generation per year at prices which are estimated to escalate approximately 1.4% annually on a unit cost basis during this period. From 2001 through 2008, Penelec has contracts to purchase between 3,900 GWH and 5,000 GWH of electric generation per year at an average annual cost of $297 million. The prices during this period are estimated to escalate approximately 1.5% annually on a unit cost basis. From 2009 through 2017, purchases decline from approximately 3,000 GWH to approximately 1,500 GWH in 2017. The contract unit cost is estimated to escalate approximately 3.4% annually from 2009 through 2017, with a total average annual cost of $211 million during this period. After 2017, Penelec's remaining contracts expire rapidly through 2020. During this entire period, the NUG fuel mix averages approximately 65% to 95% coal/waste coal. This discussion of "Nonutility Generation Agreements" contains estimates which are based on current knowledge and expectations of the outcome of future events. The estimates are subject to significant uncertainties, including changes in fuel prices, improvements in technology, the changing regulatory environment and the deregulation of the electric utility industry. The GPU Energy companies have been granted recovery of their NUG costs (including certain buyout costs) from customers by the PaPUC and NJBPU and expect to continue to pursue such recovery. Although the recently enacted legislation in Pennsylvania and the NJEMP in New Jersey both include provisions for the recovery of costs under NUG agreements and certain NUG buyout costs, there can be no assurance that the GPU Energy companies will continue to be able to recover similar costs which may be incurred in the future. (See Competitive Environment, Management's Discussion and Analysis for additional discussion.) F-89 GPU, Inc. and Subsidiary Companies Regulatory Assets and Liabilities: Regulatory assets and liabilities, as reflected in the December 31, 1996 and 1995 Consolidated Balance Sheets in accordance with the provisions of FAS 71, were as follows: GPU Assets (in thousands) December 31, December 31, 1996 1995 Income taxes recoverable through future rates $ 527,385 $ 527,584 TMI-2 deferred costs 356,517 368,712 Nonutility generation contract buyout costs 242,481 84,132 Unamortized property losses 100,310 105,729 Other postretirement benefits 76,569 58,362 Manufactured gas plant (MGP) remediation 49,596 29,608 N.J. unit tax 45,877 51,518 Unamortized loss on reacquired debt 45,378 50,198 Load and demand-side management programs 40,770 48,071 N.J. low-level radwaste disposal 37,525 21,778 DOE enrichment facility decommissioning 36,352 38,519 Nuclear fuel disposal fee 21,552 21,946 Environmental remediation (non-MGP sites) 20,864 - Storm damage 20,226 18,294 Other 31,870 15,257 Total $1,653,272 $1,439,708 Liabilities (in thousands) December 31, December 31, 1996 1995 Income taxes refundable through future rates $ 87,735 $ 94,931 Other 2,080 3,068 Total $ 89,815 $ 97,999 F-90 GPU, Inc. and Subsidiary Companies JCP&L Assets (in thousands) December 31, December 31, 1996 1995 Income taxes recoverable through future rates $ 142,726 $ 134,787 TMI-2 deferred costs 126,448 138,472 Nonutility generation contract buyout costs 139,000 17,482 Unamortized property losses 94,767 100,176 Other postretirement benefits 44,024 32,390 Manufactured gas plant (MGP) remediation 49,596 29,608 N.J. unit tax 45,877 51,518 Unamortized loss on reacquired debt 31,469 34,285 Load and demand-side management programs 40,770 48,071 N.J. low-level radwaste disposal 37,525 21,778 DOE enrichment facility decommissioning 23,150 24,503 Nuclear fuel disposal fee 23,319 23,165 Environmental remediation (non-MGP sites) 698 - Storm damage 20,226 18,294 Other 9,966 10,199 Total $ 829,561 $ 684,728 Liabilities (in thousands) December 31, December 31, 1996 1995 Income taxes refundable through future rates $ 32,567 $ 36,343 Other 683 1,254 Total $ 33,250 $ 37,597 Met-Ed Assets (in thousands) December 31, December 31, 1996 1995 Income taxes recoverable through future rates $ 174,636 $ 178,513 TMI-2 deferred costs 144,782 149,004 Nonutility generation contract buyout costs 86,781 66,650 Unamortized property losses 3,113 3,273 Other postretirement benefits 32,545 25,972 Unamortized loss on reacquired debt 6,336 6,945 DOE enrichment facility decommissioning 8,801 9,344 Nuclear fuel disposal fee (1,282) (1,025) Environmental remediation (non-MGP sites) 2,575 - Other 4,096 1,299 Total $ 462,383 $ 439,975 Liabilities (in thousands) December 31, December 31, 1996 1995 Income taxes refundable through future rates $ 23,486 $ 24,765 Other 2,495 1,696 Total $ 25,981 $ 26,461 F-91 GPU, Inc. and Subsidiary Companies Penelec Assets (in thousands) December 31, December 31, 1996 1995 Income taxes recoverable through future rates $ 210,023 $ 214,284 TMI-2 deferred costs 85,287 81,236 Nonutility generation contract buyout costs 16,700 - Unamortized property losses 2,430 2,280 Other postretirement benefits - - Unamortized loss on reacquired debt 7,686 8,968 DOE enrichment facility decommissioning 4,401 4,672 Nuclear fuel disposal fee (485) (194) Environmental remediation (non-MGP sites) 17,591 - Other 18,805 3,759 Total $ 362,438 $ 315,005 Liabilities (in thousands) December 31, December 31, 1996 1995 Income taxes refundable through future rates $ 31,682 $ 33,823 Other 12 118 Total $ 31,694 $ 33,941 Income taxes recoverable/refundable through future rates: Represents amounts deferred due to the implementation of FAS 109, "Accounting for Income Taxes," in 1993. TMI-2 deferred costs: Represents costs that are recoverable through rates for the GPU Energy companies' remaining investment in the plant and fuel core, radiological decommissioning and the cost of removal of nonradiological structures and materials in accordance with the 1995 site-specific study (in 1996 dollars) and JCP&L's share of long-term monitored storage costs. For additional information, see TMI-2 Future Costs. Nonutility generation contract buyout costs: Represents amounts incurred for terminating power purchase contracts with NUGs, for which rate recovery has been granted or is probable (see Managing Nonutility Generation, in Management's Discussion and Analysis). Unamortized property losses: Consists mainly of costs associated with JCP&L's Forked River project, which are included in rates. Other postretirement benefits: Includes costs associated with the adoption of FAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which are deferred in accordance with Emerging Issues Task Force Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises." Manufactured gas plant remediation: Consists of costs which are probable of recovery, with interest, associated with the investigation and remediation of several gas manufacturing plants. For additional information, see the Environmental Matters section. F-92 GPU, Inc. and Subsidiary Companies N.J. unit tax: Represents certain state taxes, with interest, for which JCP&L received NJBPU approval in 1993 to recover over a ten-year period. Unamortized loss on reacquired debt: Represents premiums and expenses incurred in the early redemption of long-term debt. In accordance with FERC regulations, reacquired debt costs are amortized over the remaining original life of the retired debt. Load and demand-side management (DSM) programs: Consists of load management costs and other DSM program expenditures that are currently being recovered, with interest, through JCP&L's retail base rates. Also includes provisions for lost revenues between base rate cases and performance incentives. N.J. low-level radwaste disposal: Represents the estimated assessment for the siting of a disposal facility for low-level waste from Oyster Creek, less amortization, as allowed in JCP&L's rates. DOE enrichment facility decommissioning: Represents payments to the DOE over a 15-year period beginning in 1994. For additional information, see Note 1, Summary of Significant Accounting Policies. Nuclear fuel disposal fee: Represents amounts recoverable through rates for estimated future disposal costs for spent nuclear fuel at Oyster Creek and TMI-1 in accordance with the Nuclear Waste Policy Act of 1982. Environmental remediation: Represents amounts related to the remediation of Penelec's Seward station property and various ash disposal sites for all three GPU Energy companies (see the Environmental Matters section). Storm damage: Relates to incremental noncapital costs associated with various storms in the JCP&L service territory that are not recoverable through insurance. These amounts were deferred based upon past rate recovery precedent. An annual amortization amount is included in JCP&L's retail base rates and is charged to expense. Amounts related to the decommissioning of TMI-1 and Oyster Creek, which are not included in Regulatory Assets on the Balance Sheet, are separately disclosed in the Nuclear Plant Retirement Costs section. Accounting Matters: Statement of Financial Accounting Standards No. 101, "Regulated Enterprises- Accounting for the Discontinuation of Application of FASB Statement No. 71", applies when a utility fails to continue to meet the provisions of FAS 71. (See Regulatory Accounting under Note 1 and Regulatory Assets and Liabilities above.) Although the GPU Energy companies continue to be subject to cost-based ratemaking regulation, in the event that either all or a portion of their operations are no longer subject to FAS 71 provisions, the related regulatory assets, net of regulatory liabilities, would have to be written off and charged to expense. In addition, any above market costs of power purchase commitments would have to be expensed, and additional depreciation expense would have to be recorded for any differences created by the use of a regulated depreciation method that is different from that which would have been used under generally accepted accounting principles for enterprises in general. The experience gained from the deregulation of the F-93 GPU, Inc. and Subsidiary Companies telecommunications industry indicates that substantial write-offs may result with the discontinuation of FAS 71. At this time, GPU is unable to determine when and to what extent FAS 71 will no longer be applicable. In 1995, the FASB issued Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets," which requires that regulatory assets meet the recovery criteria of FAS 71 on an ongoing basis in order to avoid a writedown. In addition, FAS 121 requires that long-lived assets, identifiable intangibles, capital leases and goodwill be reviewed for impairment whenever events occur or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. FAS 121 also requires the recognition of impairment losses when the carrying amounts of those assets are greater than the estimated cash flows expected to be generated from the use and eventual disposition of the assets. The effects of FAS 121 have not been material to GPU's results of operations. However, as GPU enters a more competitive environment, some assets could be subject to impairment, thereby necessitating writedowns, which could have a material adverse effect on GPU's results of operations and financial condition. ENVIRONMENTAL MATTERS As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including but not limited to acid rain, water quality, ambient air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, GPU may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate, decommission or cleanup waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plants, coal mine refuse piles and generation facilities. With regard to electromagnetic fields, GPU may be required to postpone or cancel the installation of, or replace or modify, utility plant, the costs of which could be material. To comply with the federal Clean Air Act Amendments of 1990 (Clean Air Act), the GPU Energy companies expect to spend up to $277 million for air pollution control equipment by the year 2000 (JCP&L $46 million; Met-Ed $117 million; Penelec $114 million), of which approximately $240 million has already been spent (JCP&L $43 million; Met-Ed $95 million; Penelec $102 million). In developing their least-cost plan to comply with the Clean Air Act, the GPU Energy companies will continue to evaluate major capital investments compared to participation in the sulfur dioxide (SO2) emission allowance market, the expected nitrogen oxide (NOx) emissions trading market and the use of low-sulfur fuel or retirement of facilities. In 1994, the Ozone Transport Commission (OTC), consisting of representatives of 12 northeast states (including New Jersey and Pennsylvania) and the District of Columbia, proposed reductions in NOx emissions it believes necessary to meet ambient air quality standards for ozone and the statutory deadlines set by the Clean Air Act. The GPU Energy companies expect that the U.S. Environmental Protection Agency (EPA) will approve state implementation plans consistent with the proposal, and that as a result, they will spend an estimated $17 million (included in the Clean Air Act total), beginning in 1997, to meet the 1999 seasonal reductions agreed upon by the OTC (JCP&L $1 million; Met-Ed $9 million; Penelec $7 million). The OTC has stated that it anticipates that additional NOx reductions will be necessary to meet the Clean Air Act's 2005 F-94 GPU, Inc. and Subsidiary Companies National Ambient Air Quality Standard (NAAQS) for ozone. However, the specific requirements that will have to be met at that time have not been finalized. In addition, the EPA has recently proposed changes to the NAAQS for ozone, particulate matter and regional haze. The GPU Energy companies are unable to determine what additional costs, if any, will be incurred. GPU has been formally notified by the EPA and state environmental authorities that it is among the potentially responsible parties (PRPs) who may be jointly and severally liable to pay for the costs associated with the investigation and remediation at hazardous and/or toxic waste sites in the following number of instances (in some cases, more than one company is named for a given site): JCP&L MET-ED PENELEC GPUN GPU INC. TOTAL 5 4 2 1 1 10 In addition, certain of the GPU companies have been requested to participate in the remediation or supply information to the EPA and state environmental authorities on several other sites for which they have not been formally named as PRPs, although the EPA and state authorities may nevertheless consider them as PRPs. Certain of the GPU companies have also been named in lawsuits requesting damages for hazardous and/or toxic substances allegedly released into the environment. The ultimate cost of remediation will depend upon changing circumstances as site investigations continue, including (a) the existing technology required for site cleanup, (b) the remedial action plan chosen and (c) the extent of site contamination and the portion attributed to the GPU companies involved. Pursuant to federal environmental monitoring requirements, Penelec has reported to the Pennsylvania Department of Environmental Protection (PaDEP) that contaminants from coal mine refuse piles were identified in storm water run-off at Penelec's Seward station property. Penelec signed a modified Consent Order, which became effective December 1996, that establishes a schedule for long-term remediation, based on future operating scenarios, including reboilering the station using fluidized bed combustion technology. Penelec currently estimates that the remediation of the Seward station property will range from $12 to $25 million and has recorded a liability of $12 million at December 31, 1996. These cost estimates are subject to uncertainties based on continuing discussions with the PaDEP as to the method of remediation, the extent of remediation required and available cleanup technologies. Penelec will seek, and expects, recovery of these remediation costs in its restructuring plan to be filed with the PaPUC (see Competitive Environment, Management's Discussion and Analysis), and has recorded a corresponding regulatory asset of approximately $12 million at December 31, 1996. The GPU Energy companies are required to submit applications for re- permitting seven operating ash disposal sites to the PaDEP by July 1997, including projected site closure procedures and related cost estimates. Applications have been filed with the PaDEP for five of these sites. The cost estimates for the closure of these five sites range from approximately $9 million to $14 million, and a liability of $9 million (JCP&L $1 million; Met- Ed $2 million; Penelec $6 million) is reflected in the Consolidated Balance Sheet at December 31, 1996. JCP&L's share of these costs is deferred based on F-95 GPU, Inc. and Subsidiary Companies past rate recovery precedent, and Penelec and Met-Ed expect recovery through their restructuring plans to be filed with the PaPUC (see Competitive Environment, Management's Discussion and Analysis). As a result, a regulatory asset of $9 million is reflected in the Consolidated Balance Sheet at December 31, 1996. JCP&L has entered into agreements with the New Jersey Department of Environmental Protection (NJDEP) for the investigation and remediation of 17 formerly owned manufactured gas plant (MGP) sites. JCP&L has also entered into various cost-sharing agreements with other utilities for most of the sites. As of December 31, 1996, JCP&L has spent approximately $23 million in connection with the cleanup of these sites. In addition, JCP&L has recorded an estimated environmental liability of $45 million relating to expected future costs of these sites (as well as two other properties). This estimated liability is based upon ongoing site investigations and remediation efforts, which generally involve capping the sites and pumping and treatment of ground water. Moreover, the cost to clean up these sites could be materially in excess of $45 million due to significant uncertainties, including changes in acceptable remediation methods and technologies. In 1994, the NJBPU approved a mechanism similar to JCP&L's LEAC for the recovery of future MGP remediation costs. However, the NJBPU has also directed that recovery of MGP remediation costs cease until such expenditures equaled the funds already collected from customers. At December 31, 1996, JCP&L had recorded on its Balance Sheet a regulatory asset of $49.6 million, which included approximately $45 million related to expected future costs discussed above and approximately $4 million for remediation expenditures in excess of collections from customers (including interest) (see Regulatory Assets and Liabilities). JCP&L is continuing to defer these remediation expenditures and accrue interest as previously authorized by the NJBPU, and is continuing to defer estimated future remediation costs. JCP&L has requested the establishment of an adjustment clause for the recovery of future remediation costs in its Remediation Adjustment Clause (RAC) filing, which is currently under NJBPU review. The Final Settlement pending before the NJBPU would allow JCP&L to continue its accounting treatment for remediation costs and would also provide for the RAC proceeding to remain open for future review. JCP&L is pursuing reimbursement from its insurance carriers for remediation costs already spent and for future estimated costs. In 1994, JCP&L filed a complaint with the Superior Court of New Jersey against several of its insurance carriers, relative to these MGP sites. Pretrial discovery has begun in this case. OTHER COMMITMENTS AND CONTINGENCIES GPU International Group: At December 31, 1996, the GPU International Group had investments totaling approximately $787 million in facilities located in foreign countries. Although management attempts to mitigate the risk of investing in certain foreign countries by securing political risk insurance, the GPU International Group faces additional risks inherent to operating in such F-96 GPU, Inc. and Subsidiary Companies locations, including foreign currency fluctuations (see GPU International Group in Management's Discussion and Analysis). At December 31, 1996, GPU, Inc.'s aggregate investment in the GPU International Group was $211 million; GPU, Inc. has also guaranteed up to an additional $893 million of GPU International Group obligations. Of this amount, $680 million is included in Long-term debt in the Consolidated Balance Sheet at December 31, 1996 (see Note 3, Long-Term Debt); $30 million relates to a GPU International, Inc. revolving credit agreement (see Note 2, Short- Term Borrowing Arrangements); and $183 million relates to various other obligations of the GPU International Group. Niagara Mohawk Power Corporation (NIMO) has filed with the New York Public Service Commission a proposed restructuring plan that it claims may be needed to avoid seeking reorganization under Chapter XI of the Bankruptcy Code. GPU International, Inc. has ownership interests, with an aggregate book value of approximately $36 million, in three NUG projects which have long-term power purchase agreements with NIMO. In August 1996, NIMO proposed to buy out or restructure 44 of its NUG power purchase agreements, including those for the three GPU International, Inc. projects. GPU International, Inc., in conjunction with the other NUG developers, is discussing the proposal with NIMO. There can be no assurance as to the outcome of this matter. NIMO has also initiated an action in federal court seeking to invalidate numerous NUG contracts, including those for the GPU International, Inc. projects. GPU International, Inc. has filed motions to dismiss the complaint. There can be no assurance as to the outcome of these proceedings. The Labour Party in the United Kingdom has proposed a windfall tax on privatized utilities and other companies as part of its election campaign platform. General elections in the United Kingdom are required to be held no later than May 1997. If the Labour Party wins the general election, and the tax is enacted as currently proposed, a charge to Midlands' earnings, which is estimated to range from $110 million to $350 million (GPU's 50% share being $55 million to $175 million), would be recorded in 1997, perhaps as early as the second quarter. Due to the fact that (1) the Labour Party may not win the election; (2) the windfall tax may not be enacted as currently proposed; (3) the amount of the proposed tax may change; and (4) the Labour Party may change its current platform, there is no certainty that this tax, if levied, would be enacted as currently proposed. Other: In 1996, 493 bargaining employees (JCP&L 265; Met-Ed 90; Penelec 133; Other 5) and 347 nonbargaining employees (JCP&L 76; Met-Ed 73; Penelec 32; Other 166) accepted voluntary enhanced retirement programs, resulting in an 8% reduction in GPU's total workforce and a third quarter pre-tax charge to earnings of $122.7 million (JCP&L $62.9 million; Met-Ed $26.2 million; Penelec $33.6 million). The charges for these programs are included in Other Operation and Maintenance on the Income Statement. GPU's construction programs, for which substantial commitments have been incurred and which extend over several years, contemplate expenditures of $402 million during 1997 (JCP&L $185 million; Met-Ed $90 million; Penelec $120 million; Other $7 million). As a consequence of reliability, licensing, F-97 GPU, Inc. and Subsidiary Companies environmental and other requirements, additions to utility plant may be required relatively late in their expected service lives. If such additions are made, current depreciation allowance methodology may not make adequate provision for the recovery of such investments during their remaining lives. The GPU Energy companies have entered into long-term contracts with nonaffiliated mining companies for the purchase of coal for certain generating stations in which they have ownership interests. The contracts, which expire at various dates between 1997 and 2004, require the purchase of either fixed or minimum amounts of the stations' coal requirements. The price of the coal under the contracts is based on adjustments of indexed cost components. One of Penelec's contracts for the Homer City station also includes a provision for the payment of postretirement benefit costs. The GPU Energy companies' share of the cost of coal purchased under these agreements is expected to aggregate $133 million for 1997 (JCP&L $23 million; Met-Ed $29 million; Penelec $81 million). JCP&L has entered into agreements with other utilities to purchase capacity and energy for various periods through 2004. These agreements will provide for up to 745 MW in 1997, declining to 527 MW in 1999 and 345 MW in 2004. Payments pursuant to these agreements are estimated to be $145 million in 1997, $128 million in 1998, $104 million in 1999, $84 million in 2000 and $99 million in 2001. In October 1996, JCP&L was named as a defendant in a breach of contract lawsuit against Freehold Cogeneration Associates (Freehold) brought by Nestle Beverage Company (Nestle) in the New Jersey Superior Court. The lawsuit relates to the April 1996 agreement under which JCP&L agreed to buy out the power purchase agreement for the proposed 110 MW Freehold cogeneration project. Nestle is seeking damages of at least $75 million for Freehold's alleged breach of its steam sales agreement with Nestle and approximately $412 million in damages against JCP&L for alleged unlawful interference with that agreement. Nestle has also requested punitive damages in an unspecified amount. JCP&L believes the claims against it are without merit. There can be no assurance as to the outcome of this matter. In 1993, the NJBPU instituted a generic proceeding to respond to contentions of the Division of the Ratepayer Advocate that by permitting utilities to recover NUG capacity costs through the LEAC, an excess or "double" recovery may result when combined with the recovery of the utilities' embedded capacity costs through their base rates. In 1994, the NJBPU ruled that LEAC periods after March 1991 were open for further investigation. JCP&L estimates that the potential refund liability through February 1997, the end of the most recent LEAC period, is $45 million. The Final Settlement which is now pending before the NJBPU would resolve all remaining issues in this proceeding. (See Rate Matters in Management's Discussion and Analysis). In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), the GPU Energy companies have entered into contracts with, and have been paying fees to, the DOE for the future disposal of spent nuclear fuel in a repository or interim storage facility. In December 1996, the DOE notified the GPU Energy F-98 GPU, Inc. and Subsidiary Companies companies and other standard contract holders that it will be unable to begin acceptance of spent nuclear fuel for disposal by 1998, as mandated by the NWPA. The DOE has requested recommendations for handling the delay. In January 1997, the GPU Energy companies, along with other electric utilities and state agencies, petitioned the U.S. Court of Appeals to, among other things, permit utilities to cease payments into the Federal Nuclear Waste Fund until the DOE complies with the NWPA. The DOE's inability to accept spent nuclear fuel by 1998 could have a material impact on GPU's results of operations, as additional costs may be incurred to build and maintain interim on-site storage at Oyster Creek. TMI-1 has sufficient on-site storage capacity to accommodate spent nuclear fuel through the end of its licensed life. There can be no assurance as to the outcome of this matter. New Jersey and Connecticut have established the Northeast Compact, to construct a low-level radioactive waste disposal facility in New Jersey, which should commence operation by the end of 2003. GPUN's total share of the cost for developing, constructing, and licensing the facility is estimated to be $58 million, which will be paid through 2002. Through December 1996, $6 million has been paid. As a result, at December 31, 1996, a liability of $52 million is reflected on the Consolidated Balance Sheet. JCP&L is recovering these costs from customers, and a regulatory asset has also been recorded. (See the Regulatory Assets and Liabilities section.) JCP&L's two operating nuclear units are subject to the NJBPU's annual nuclear performance standard. Operation of these units at an aggregate annual generating capacity factor below 65% or above 75% would trigger a charge or credit based on replacement energy costs. At current cost levels, the maximum annual effect on net income of the performance standard charge at a 40% capacity factor would be approximately $11.7 million before tax. While a capacity factor below 40% would generate no specific monetary charge, it would require the issue to be brought before the NJBPU for review. The annual measurement period, which begins in March of each year, coincides with that used for the LEAC. Many of GPU's computer systems must be modified due to certain programming limitations in recognizing dates beyond 1999. GPU currently estimates that it will cost approximately $20 million to $35 million to modify these systems. These costs will be expensed as incurred. As of December 31, 1996, approximately 52% of GPU's workforce was represented by unions for collective bargaining purposes. In 1996, JCP&L entered into a new collective bargaining agreement, which expires in 1999. Met-Ed and Penelec's collective bargaining agreements expire in 1997 and 1998, respectively. During the normal course of the operation of its businesses, in addition to the matters described above, GPU is from time to time involved in disputes, claims and, in some cases, as a defendant in litigation in which compensatory and punitive damages are sought by the public, customers, contractors, vendors and other suppliers of equipment and services and by employees alleging unlawful employment practices. While management does not expect that the outcome of these matters will have a material effect on the GPU's financial position or results of operations, there can be no assurance that this will continue to be the case. F-99 GPU, Inc. and Subsidiary Companies SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands) Column A Column B Column C Column D Column E Additions Balance (1) (2) at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions of Period Year ended December 31, 1996 Allowance for doubtful accounts $8,182 $17,501 $5,304(a) $22,327(b) $8,660 Allowance for inventory obsolescence 3,373 650 2,207(e) 3,974(c) 2,256 Year ended December 31, 1995 Allowance for doubtful accounts $7,430 $14,634 $5,789(a) $19,671(b) $8,182 Allowance for inventory obsolescence 4,923 - - 1,550(c) 3,373 Year ended December 31, 1994 Allowance for doubtful accounts $7,361 $14,105 $5,031(a) $19,067(b) $7,430 Allowance for inventory obsolescence 5,681 - 814(d) 1,572(c) 4,923 (a) Recovery of accounts previously written off. (b) Accounts receivable written off. (c) Inventory written off. (d) Sale of inventory previously written off by Met-Ed ($466) and reestablishment of zero value inventory by JCP&L ($348). (e) Sale of inventory previously written off by Met-Ed ($4) and JCP&L ($4) and reestablishment of zero value inventory by JCP&L ($2,199). F-100 Jersey Central Power & Light Company and Subsidiary Company COMPANY STATISTICS For The Years Ended December 31, 1996 1995 1994 1993 1992 1991 Capacity at Company Peak (in MW): Company owned 2,850 2,749 2,765 2,839 2,826 2,836 Contracted 2,497 2,462 2,403 2,033 2,364 1,995 Total capacity (a) 5,347 5,211 5,168 4,872 5,190 4,831 Hourly Peak Load (in MW): Summer peak 4,130 4,554 4,292 4,564 4,149 4,376 Winter peak 3,173 3,260 3,242 3,129 3,135 3,222 Reserve at company peak (%) 29.5 14.4 20.4 6.7 25.1 10.4 Load factor (%) (b) 53.9 47.1 50.8 49.1 51.7 49.3 Sources of Energy (in thousands of MWH): Coal 2,105 1,929 1,738 1,983 1,985 1,926 Nuclear 6,114 6,791 5,275 6,151 6,259 4,362 Gas, hydro & oil 535 861 757 460 270 1,066 Net generation 8,754 9,581 7,770 8,594 8,514 7,354 Utility purchases and interchange 6,608 6,304 6,966 7,253 7,173 9,498 Nonutility purchases 5,439 5,850 4,920 4,820 5,274 3,579 Total sources of energy 20,801 21,735 19,656 20,667 20,961 20,431 Company use, line loss, etc (2,127) (1,749) (1,405) (2,026) (2,075) (1,799) Total electric energy sales 18,674 19,986 18,251 18,641 18,886 18,632 Fuel Expense (in millions): Coal $ 30 $ 26 $26 $28 $26 $ 28 Nuclear 40 44 35 42 41 32 Gas & oil 31 31 34 29 18 41 Total $101 $101 $95 $99 $85 $101 Power Purchased and Interchanged (in millions): Utility purchases and interchange $246 $279 $295 $310 $325 $390 Nonutility purchases 370 382 304 292 316 216 Total $616 $661 $599 $602 $641 $606 Electric Energy Sales (in thousands of MWH): Residential 7,266 7,112 7,094 6,983 6,568 6,757 Commercial 6,829 6,611 6,586 6,474 6,207 6,243 Industrial 3,497 3,562 3,673 3,689 3,723 3,816 Other 78 77 76 369 389 383 Sales to customers 17,670 17,362 17,429 17,515 16,887 17,199 Sales to other utilities 1,004 2,624 822 1,126 1,999 1,433 Total 18,674 19,986 18,251 18,641 18,886 18,632 Operating Revenues (in millions): Residential $ 895 $ 881 $ 855 $ 835 $ 735 $ 750 Commercial 775 742 721 699 630 620 Industrial 311 315 322 321 306 309 Other 21 21 21 40 40 39 Sales to customers 2,002 1,959 1,919 1,895 1,711 1,718 Sales to other utilities 35 62 19 31 53 45 Total electric energy sales 2,037 2,021 1,938 1,926 1,764 1,763 Other revenues 21 15 15 10 10 10 Total $2,058 $2,036 $1,953 $1,936 $1,774 $1,773 Price per KWH (in cents): Residential 12.40 12.31 12.06 11.90 11.15 11.11 Commercial 11.38 11.20 10.92 10.78 10.08 9.93 Industrial 8.92 8.45 8.78 8.70 8.20 8.08 Total sales to customers 11.38 11.24 11.00 10.80 10.09 9.99 Total electric energy sales 10.96 10.08 10.61 10.31 9.30 9.47 Kilowatt-hour Sales per Residential Customer 8,637 8,559 8,690 8,669 8,264 8,585 Customers at Year-End (in thousands) 954 940 924 911 897 887 (a) Summer ratings at December 31, 1996 of owned and contracted capacity were 2,718 MW and 2,226 MW, respectively. (b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year. F-101 Jersey Central Power & Light Company and Subsidiary Company SELECTED FINANCIAL DATA (In Thousands) For the Years Ended December 31, 1996* 1995 1994** 1993 1992 1991*** Operating revenues $2,057,918 $2,035,928 $1,952,425 $1,935,909 $1,774,071 $1,773,219 Other operation and maintenance expense 556,086 475,448 526,623 460,128 424,285 433,562 Net income 156,303 199,089 162,841 158,344 117,361 153,523 Earnings available for common stock 143,231 184,632 148,046 141,534 96,757 134,083 Net utility plant in service 2,717,056 2,641,565 2,620,212 2,558,160 2,429,756 2,365,987 Total assets 4,709,919 4,456,389 4,336,640 4,269,155 3,886,904 3,695,645 Long-term debt 1,173,091 1,192,945 1,168,444 1,215,674 1,116,930 1,022,903 Long-term obligations under capital leases 933 2,402 4,362 6,966 4,645 5,471 Company-obligated mandatorily redeemable preferred securities 125,000 125,000 - - - - Cumulative preferred stock with mandatory redemption 114,000 134,000 150,000 150,000 150,000 100,000 Capital expenditures 199,823 217,805 243,878 197,059 218,874 241,774 Return on average common equity 9.5% 13.1% 11.2% 11.1% 8.0% 11.9% Number of employees 2,538 3,111 3,077 3,447 3,434 3,466 * Results for 1996 reflect a decrease in earnings of $39.4 million (after-tax) for costs related to voluntary enhanced retirement programs. ** Results for 1994 reflect a net decrease in earnings of $23.0 million (after-tax) due to charges for costs related to early retirement programs ($30.4 million); and net interest income from refunds of previously paid federal income taxes related to the tax retirement of TMI-2 ($7.4 million). *** Results for 1991 reflect an increase in earnings of $27.1 million (after-tax) for an accounting change recognizing unbilled revenues and a decrease in earnings of $5.7 million (after-tax) for estimated TMI-2 costs. F-102 Jersey Central Power & Light Company and Subsidiary Company QUARTERLY FINANCIAL DATA (UNAUDITED) First Quarter Second Quarter In Thousands 1996 1995 1996 1995 Operating revenues $529,274 $468,034 $475,884 $453,081 Operating income 77,361 57,227 67,750 61,834 Net income 54,496 36,211 40,381 36,796 Earnings available for common stock 50,910 32,512 37,219 33,210 Third Quarter Fourth Quarter In Thousands 1996* 1995 1996 1995 Operating revenues $578,274 $625,479 $474,486 $489,334 Operating income 53,452 119,457 58,743 52,702 Net income 27,519 95,447 33,907 30,635 Earnings available for common stock 24,357 91,861 30,745 27,049 * Results for the third quarter of 1996 reflect charges of $39.4 million (after-tax) for costs related to voluntary enhanced retirement programs. F-103
Jersey Central Power & Light Company and Subsidiary Company REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Jersey Central Power & Light Company Reading, Pennsylvania We have audited the consolidated financial statements and financial statement schedule of Jersey Central Power & Light Company and Subsidiary Company as listed in the index on page F-1 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jersey Central Power & Light Company and Subsidiary Company as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. New York, New York February 5, 1997 F-104 Jersey Central Power & Light Company and Subsidiary Company CONSOLIDATED STATEMENTS OF INCOME
(In Thousands) For The Years Ended December 31, 1996 1995 1994 Operating Revenues $2,057,918 $2,035,928 $1,952,425 Operating Expenses: Fuel 101,357 101,110 94,503 Power purchased and interchanged: Affiliates 27,058 17,950 18,661 Others 589,396 642,858 579,948 Deferral of energy and capacity costs, net 19,441 (5,949) (19,448) Other operation and maintenance 556,086 475,448 526,623 Depreciation and amortization 207,309 194,976 191,042 Taxes, other than income taxes 228,885 226,994 231,070 Total operating expenses 1,729,532 1,653,387 1,622,399 Operating Income Before Income Taxes 328,386 382,541 330,026 Income taxes 71,080 91,321 75,748 Operating Income 257,306 291,220 254,278 Other Income and Deductions: Allowance for other funds used during construction 1,536 1,803 893 Other income/(expense), net 7,202 14,889 21,995 Income taxes (3,357) (5,905) (9,372) Total other income and deductions 5,381 10,787 13,516 Income Before Interest Charges and Dividends on Preferred Securities 262,687 302,007 267,794 Interest Charges and Dividends on Preferred Securities: Interest on long-term debt 89,648 92,602 93,477 Other interest 11,147 9,709 14,726 Allowance for borrowed funds used during construction (5,111) (6,021) (3,250) Dividends on company-obligated mandatorily redeemable preferred securities 10,700 6,628 - Total interest charges and dividends on preferred securities 106,384 102,918 104,953 Net Income 156,303 199,089 162,841 Preferred stock dividends 13,072 14,457 14,795 Earnings Available for Common Stock $ 143,231 $ 184,632 $ 148,046 The accompanying notes are an integral part of the consolidated financial statements. F-105 Jersey Central Power & Light Company and Subsidiary Company CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1996 1995 ASSETS Utility Plant: In service, at original cost $4,528,676 $4,311,458 Less, accumulated depreciation 1,811,620 1,669,893 Net utility plant in service 2,717,056 2,641,565 Construction work in progress 106,512 157,885 Other, net 111,116 111,023 Net utility plant 2,934,684 2,910,473 Other Property and Investments: Nuclear decommissioning trusts, at market 278,342 225,200 Nuclear fuel disposal trust, at market 101,661 95,393 Other, net 8,305 7,218 Total other property and investments 388,308 327,811 Current Assets: Cash and temporary cash investments 1,321 922 Special deposits 6,939 7,358 Accounts receivable: Customers, net 135,655 150,002 Other 33,228 21,912 Unbilled revenues 56,522 66,389 Materials and supplies, at average cost or less: Construction and maintenance 92,761 95,949 Fuel 19,257 18,693 Deferred income taxes 22,509 8,842 Prepayments 21,150 20,869 Total current assets 389,342 390,936 Deferred Debits and Other Assets: Regulatory assets: Income taxes recoverable through future rates 142,726 134,787 Nonutility generation contract buyout costs 139,000 17,482 Three Mile Island Unit 2 deferred costs 126,448 138,472 Unamortized property losses 94,767 100,176 Other 326,620 293,811 Total regulatory assets 829,561 684,728 Deferred income taxes 138,903 122,082 Other 29,121 20,359 Total deferred debits and other assets 997,585 827,169 Total Assets $4,709,919 $4,456,389 The accompanying notes are an integral part of the consolidated financial statements. F-106 Jersey Central Power & Light Company and Subsidiary Company CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1996 1995 LIABILITIES AND CAPITAL Capitalization: Common stock $ 153,713 $ 153,713 Capital surplus 510,769 510,769 Retained earnings 825,001 816,770 Total common stockholder's equity 1,489,483 1,481,252 Cumulative preferred stock: With mandatory redemption 114,000 134,000 Without mandatory redemption 37,741 37,741 Company-obligated mandatorily redeemable preferred securities 125,000 125,000 Long-term debt 1,173,091 1,192,945 Total capitalization 2,939,315 2,970,938 Current Liabilities: Securities due within one year 110,075 35,710 Notes payable 31,800 800 Obligations under capital leases 96,150 90,329 Accounts payable: Affiliates 71,761 31,885 Other 94,258 111,225 Taxes accrued 2,063 10,516 Deferred energy credits/(costs) 15,559 (5,290) Interest accrued 28,350 28,718 Other 80,195 71,769 Total current liabilities 530,211 375,662 Deferred Credits and Other Liabilities: Deferred income taxes 664,440 607,188 Unamortized investment tax credits 59,893 66,874 Three Mile Island Unit 2 future costs 107,652 103,271 Nuclear fuel disposal fee 127,543 121,121 Regulatory liabilities 33,250 37,597 Other 247,615 173,738 Total deferred credits and other liabilities 1,240,393 1,109,789 Commitments and Contingencies (Note 14) Total Liabilities and Capital $4,709,919 $4,456,389 The accompanying notes are an integral part of the consolidated financial statements. F-107 Jersey Central Power & Light Company and Subsidiary Company CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (In Thousands) For the Years Ended December 31, 1996 1995 1994 Balance at beginning of year $ 816,770 $ 772,240 $ 724,194 Net income 156,303 199,089 162,841 Total 973,073 971,329 887,035 Cash dividends on capital stock: Cumulative preferred stock (at the annual rates indicated below): 4% Series ($4.00 a share) (500) (500) (500) 7.88% Series E ($7.88 a share) (1,970) (1,970) (1,970) 8.48% Series I ($8.48 a share) (2,968) (4,240) (4,240) 8.65% Series J ($8.65 a share) (4,325) (4,325) (4,325) 7.52% Series K ($7.52 a share) (3,309) (3,422) (3,760) Common stock (not declared on a per share basis) (135,000) (140,000) (100,000) Total (148,072) (154,457) (114,795) Other adjustments, net - (102) - Balance at end of year $ 825,001 $ 816,770 $ 772,240 The accompanying notes are an integral part of the consolidated financial statements. F-108 Jersey Central Power & Light Company and Subsidiary Company CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) For The Years Ended December 31, 1996 1995 1994 Operating Activities: Net income $ 156,303 $ 199,089 $ 162,841 Adjustments to reconcile income to cash provided: Depreciation and amortization 217,225 212,609 209,823 Amortization of property under capital leases 28,339 31,963 27,876 Voluntary enhanced retirement programs 62,909 - 46,862 Nuclear outage maintenance costs, net (15,392) 16,239 (16,182) Deferred income taxes and investment tax credits, net 4,056 (3,264) 35,426 Deferred energy and capacity costs, net 19,436 (6,511) (19,166) Accretion income (11,610) (12,520) (13,541) Allowance for other funds used during construction (1,536) (1,803) (893) Changes in working capital: Receivables 12,897 (35,318) 24,579 Materials and supplies 2,624 (2,642) 1,221 Special deposits and prepayments 138 22,261 20,282 Payables and accrued liabilities (62,157) (47,634) (103,485) Nonutility generation contract buyout costs (65,000) (17,000) - Other, net (6,334) (12,816) (19,537) Net cash provided by operating activities 341,898 342,653 356,106 Investing Activities: Cash construction expenditures (199,823) (217,805) (243,878) Contributions to decommissioning trusts (18,004) (18,793) (17,237) Other, net (10,253) (7,114) (15,417) Net cash used for investing activities (228,080) (243,712) (276,532) Financing Activities: Issuance of long-term debt 79,550 49,625 - Increase/(Decrease) in notes payable, net 31,000 (109,700) 110,500 Retirement of long-term debt (25,710) (47,439) (60,008) Capital lease principal payments (29,763) (26,991) (31,531) Issuance of company-obligated mandatorily redeemable preferred securities - 121,063 - Redemption of preferred stock (20,000) (6,049) - Dividends paid on preferred stock (13,496) (14,569) (14,795) Dividends paid on common stock (135,000) (140,000) (100,000) Contribution from parent corporation - 75,000 - Net cash required by financing activities (113,419) (99,060) (95,834) Net increase/(decrease) in cash and temporary cash investments from above activities 399 (119) (16,260) Cash and temporary cash investments, beginning of year 922 1,041 17,301 Cash and temporary cash investments, end of year $ 1,321 $ 922 $ 1,041 Supplemental Disclosure: Interest paid $ 106,264 $ 106,673 $ 109,094 Income taxes paid $ 90,960 $ 93,662 $ 44,619 New capital lease obligations incurred $ 32,694 $ 18,264 $ 37,699 The accompanying notes are an integral part of the consolidated financial statements. F-109 Jersey Central Power & Light Company and Subsidiary Company SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In Thousands) Column A Column B Column C Column D Column E Additions Balance (1) (2) at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions of Period Year ended December 31, 1996 Allowance for doubtful accounts $1,958 $5,080 $1,680(a) $7,048(b) $1,670 Allowance for inventory obsolescence 197 - 4(e) 2,194(c) 206 2,199(d) Year ended December 31, 1995 Allowance for doubtful accounts $1,359 $5,076 $2,480(a) $6,957(b) $1,958 Allowance for inventory obsolescence 348 - - 151(c) 197 Year ended December 31, 1994 Allowance for doubtful accounts $1,143 $5,447 $1,972(a) $7,203(b) $1,359 Allowance for inventory obsolescence - - 348(d) - 348 (a) Recovery of accounts previously written off. (b) Accounts receivable written off. (c) Inventory written off. (d) Reestablishment of zero value inventory. (e) Sale of inventory previously written off. F-110 Metropolitan Edison Company and Subsidiary Companies COMPANY STATISTICS Capacity at Company Peak (in MW): Company owned 1,705 1,604 1,602 1,602 1,602 1,613 Contracted 853 492 499 676 609 677 Total capacity (a) 2,558 2,096 2,101 2,278 2,211 2,290 Hourly Peak Load (in MW): Summer peak 2,017 2,186 2,000 1,944 1,845 1,978 Winter peak 2,114 2,012 1,954 1,940 1,834 1,842 Reserve at company peak (%) 21.0 (4.1) 5.1 17.2 19.8 15.8 Load factor (%) (b) 66.3 61.4 66.6 67.2 67.6 63.2 Sources of Energy (in thousands of MWH): Coal 4,760 4,334 4,547 4,283 4,809 4,829 Nuclear 3,550 3,194 3,294 2,975 3,460 2,824 Gas, hydro & oil 182 253 194 42 64 85 Net generation 8,492 7,781 8,035 7,300 8,333 7,738 Utility purchases and interchange 2,021 3,087 2,295 3,398 3,319 3,477 Nonutility purchases 2,406 2,066 1,654 1,623 1,333 1,135 Total sources of energy 12,919 12,934 11,984 12,321 12,985 12,350 Company use, line loss, etc (718) (856) (660) (884) (479) (982) Total electric energy sales 12,201 12,078 11,324 11,437 12,506 11,368 Fuel Expense (in millions): Coal $69 $61 $71 $64 $72 $ 88 Nuclear 20 20 20 16 19 19 Gas & oil 5 6 3 2 2 2 Total $94 $87 $94 $82 $93 $109 Power Purchased and Interchanged (in millions): Utility purchases and interchange $ 54 $ 84 $ 80 $108 $105 $122 Nonutility purchases 177 131 101 95 78 66 Total $231 $215 $181 $203 $183 $188 Electric Energy Sales (in thousands of MWH): Residential 4,135 3,925 3,921 3,800 3,567 3,542 Commercial 3,144 3,011 2,921 2,794 2,638 2,618 Industrial 4,033 3,957 3,861 3,664 3,589 3,502 Other 213 209 211 284 329 320 Sales to customers 11,525 11,102 10,914 10,542 10,123 9,982 Sales to other utilities 676 976 410 895 2,383 1,386 Total 12,201 12,078 11,324 11,437 12,506 11,368 Operating Revenues (in millions): Residential $365 $339 $327 $322 $306 $301 Commercial 247 229 215 209 201 197 Industrial 243 228 215 207 213 209 Other 14 13 12 18 22 21 Sales to customers 869 809 769 756 742 728 Sales to other utilities 20 26 12 27 63 45 Total electric energy sales 889 835 781 783 805 773 Other revenues 21 20 20 18 17 15 Total $910 $855 $801 $801 $822 $788 Price per KWH (in cents): Residential 8.90 8.54 8.39 8.42 8.60 8.45 Commercial 7.88 7.54 7.38 7.46 7.63 7.51 Industrial 6.04 5.74 5.55 5.68 5.95 5.96 Total sales to customers 7.58 7.23 7.07 7.16 7.34 7.27 Total electric energy sales 7.33 6.86 6.92 6.83 6.45 6.78 Kilowatt-hour Sales per Residential Customer 10,012 9,609 9,741 9,573 9,139 9,203 Customers at Year-End (in thousands) 470 465 458 451 445 437 (a) Winter ratings at December 31, 1996 of owned and contracted capacity were 1,705 MW and 823 MW, respectively. (b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year. F-111 Metropolitan Edison Company and Subsidiary Companies SELECTED FINANCIAL DATA (In Thousands) For the Years Ended December 31, 1996* 1995** 1994*** 1993 1992 1991**** Operating revenues $ 910,408 $ 854,674 $ 801,303 $ 801,487 $ 821,823 $ 788,462 Other operation and maintenance expense 249,993 229,559 258,656 210,822 208,756 224,315 Net income 69,067 148,540 731 77,875 73,077 62,341 Earnings available for common stock 71,845 147,596 (2,229) 70,915 62,788 52,052 Net utility plant in service 1,455,702 1,477,030 1,437,250 1,361,409 1,290,628 1,226,436 Total assets 2,472,978 2,437,165 2,236,279 2,172,543 1,811,689 1,726,388 Long-term debt 563,252 603,268 529,783 546,319 496,440 386,404 Long-term obligations under capital leases 380 1,032 2,174 3,557 2,643 2,555 Company-obligated mandatorily redeemable preferred securities 100,000 100,000 100,000 - - - Capital expenditures 76,660 112,554 159,717 142,380 130,641 121,840 Return on average common equity 10.3% 23.5% (0.4%) 12.2% 11.8% 9.4% Number of employees 2,093 2,166 2,000 2,322 2,328 2,322 * Results for 1996 reflect a decrease in earnings of $15.4 million (after tax) for costs related to voluntary enhanced retirement programs. ** Results for 1995 reflect the reversal of $72.8 million (after-tax) of certain future TMI-2 retirement costs written off in 1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this increase was a charge to income of $5.7 million (after-tax) of TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. *** Results for 1994 reflect a net decrease in earnings of $79.9 million (after-tax) due to a write-off of certain future TMI-2 retirement costs ($72.8 million); charges for costs related to early retirement programs ($20.1 million); and net interest income from refunds of previously paid federal income taxes related to the tax retirement of TMI-2 ($13.0 million). **** Results for 1991 reflect an increase in earnings of $14.9 million (after-tax) for an accounting change recognizing unbilled revenues and a decrease in earnings of $33.5 million (after-tax) for estimated TMI-2 costs. F-112 Metropolitan Edison Company and Subsidiary Companies QUARTERLY FINANCIAL DATA (UNAUDITED) First Quarter Second Quarter In Thousands 1996 1995 1996 1995 Operating revenues $237,688 $205,749 $207,058 $190,342 Operating income 38,392 31,155 31,129 28,335 Net income 24,037 16,384 16,806 12,617 Earnings available for common stock 23,801 16,148 16,570 12,381 Third Quarter Fourth Quarter In Thousands 1996* 1995** 1996 1995 Operating revenues $243,077 $241,664 $222,585 $216,919 Operating income 23,575 35,121 33,804 37,194 Net income 8,382 97,391 19,842 22,148 Earnings available for common stock 8,146 97,155 23,328 21,912 * Results for the third quarter of 1996 reflect charges of $15.4 million (after-tax) for costs related to voluntary enhanced retirement programs. ** Results for the third quarter of 1995 reflect the reversal of $72.8 million (after-tax) of certain future TMI-2 retirement costs written off in the second quarter of 1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this increase was a charge to income of $5.7 million (after-tax) of TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. F-113
Metropolitan Edison Company and Subsidiary Companies REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Metropolitan Edison Company Reading, Pennsylvania We have audited the consolidated financial statements and financial statement schedule of Metropolitan Edison Company and Subsidiary Companies as listed in the index on page F-1 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Metropolitan Edison Company and Subsidiary Companies as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. New York, New York February 5, 1997 F-114 Metropolitan Edison Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF INCOME
(In Thousands) For The Years Ended December 31, 1996 1995 1994 Operating Revenues $910,408 $854,674 $801,303 Operating Expenses: Fuel 93,881 87,477 94,260 Power purchased and interchanged: Affiliates 20,724 31,411 17,834 Others 209,831 184,319 162,693 Deferral of energy costs, net (448) (1,041) (15,518) Other operation and maintenance 249,993 229,559 258,656 Depreciation and amortization 98,364 99,588 86,063 Taxes, other than income taxes 61,319 54,870 51,817 Total operating expenses 733,664 686,183 655,805 Operating Income Before Income Taxes 176,744 168,491 145,498 Income taxes 49,844 36,686 34,002 Operating Income 126,900 131,805 111,496 Other Income and Deductions: Allowance for other funds used during construction 540 1,304 1,978 Other income/(expense), net 1,220 129,660 (98,953) Income taxes (489) (55,364) 42,748 Total other income and deductions 1,271 75,600 (54,227) Income Before Interest Charges and Dividends on Preferred Securities 128,171 207,405 57,269 Interest Charges and Dividends on Preferred Securities: Interest on long-term debt 45,373 45,844 43,270 Other interest 5,436 5,147 11,937 Allowance for borrowed funds used during construction (705) (1,126) (1,869) Dividends on company-obligated mandatorily redeemable preferred securities 9,000 9,000 3,200 Total interest charges and dividends on preferred securities 59,104 58,865 56,538 Net Income 69,067 148,540 731 Preferred stock dividends 944 944 2,960 Gain on preferred stock reacquisition 3,722 - - Earnings/(Loss) Available for Common Stock $ 71,845 $147,596 $ (2,229) The accompanying notes are an integral part of the consolidated financial statements. F-115 Metropolitan Edison Company and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1996 1995 ASSETS Utility Plant: In service, at original cost $2,297,100 $2,240,951 Less, accumulated depreciation 841,398 763,921 Net utility plant in service 1,455,702 1,477,030 Construction work in progress 98,171 83,353 Other, net 31,000 45,587 Net utility plant 1,584,873 1,605,970 Other Property and Investments: Nuclear decommissioning trusts, at market 131,475 95,317 Other, net 11,261 9,899 Total other property and investments 142,736 105,216 Current Assets: Cash and temporary cash investments 1,901 1,810 Special deposits 1,052 1,256 Accounts receivable: Customers, net 61,522 60,739 Other 17,368 22,151 Unbilled revenues 27,019 31,509 Materials and supplies, at average cost or less: Construction and maintenance 39,739 39,337 Fuel 11,026 9,817 Deferred income taxes 7,073 7,868 Prepayments 17,254 6,549 Total current assets 183,954 181,036 Deferred Debits and Other Assets: Regulatory assets: Income taxes recoverable through future rates 174,636 178,513 Three Mile Island Unit 2 deferred costs 144,782 149,004 Nonutility generation contract buyout costs 86,781 66,650 Other 56,184 45,808 Total regulatory assets 462,383 439,975 Deferred income taxes 85,169 91,356 Other 13,863 13,612 Total deferred debits and other assets 561,415 544,943 Total Assets $2,472,978 $2,437,165 The accompanying notes are an integral part of the consolidated financial statements. F-116 Metropolitan Edison Company and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1996 1995 LIABILITIES AND CAPITAL Capitalization: Common stock $ 66,273 $ 66,273 Capital surplus 370,200 370,200 Retained earnings 264,044 248,434 Total common stockholder's equity 700,517 684,907 Cumulative preferred stock 12,056 23,598 Company-obligated mandatorily redeemable preferred securities 100,000 100,000 Long-term debt 563,252 603,268 Total capitalization 1,375,825 1,411,773 Current Liabilities: Securities due within one year 40,020 15,019 Notes payable 50,667 22,390 Obligations under capital leases 29,964 43,600 Accounts payable: Affiliates 27,556 10,559 Other 89,857 91,538 Taxes accrued 11,222 19,615 Deferred energy credits - 1,417 Interest accrued 18,279 19,359 Other 45,825 40,635 Total current liabilities 313,390 264,132 Deferred Credits and Other Liabilities: Deferred income taxes 401,104 380,135 Three Mile Island Unit 2 future costs 215,204 206,489 Unamortized investment tax credits 31,584 33,387 Nuclear fuel disposal fee 28,811 27,360 Regulatory liabilities 25,981 26,461 Other 81,079 87,428 Total deferred credits and other liabilities 783,763 761,260 Commitments and Contingencies (Note 14) Total Liabilities and Capital $2,472,978 $2,437,165 The accompanying notes are an integral part of the consolidated financial statements. F-117 Metropolitan Edison Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (In Thousands) For the Years Ended December 31, 1996 1995 1994 Balance at beginning of year $ 248,434 $ 190,742 $ 229,677 Net income 69,067 148,540 731 Total 317,501 339,282 230,408 Cash dividends on capital stock: Cumulative preferred stock (at the annual rates indicated below): 3.90% Series ($3.90 a share) (459) (459) (459) 4.35% Series ($4.35 a share) (145) (145) (145) 3.85% Series ($3.85 a share) (112) (112) (112) 3.80% Series ($3.80 a share) (69) (69) (69) 4.45% Series ($4.45 a share) (159) (159) (159) 7.68% Series G ($7.68 a share) - - (2,016) Common stock (not declared on a per share basis) (60,000) (95,000) (35,000) Total (60,944) (95,944) (37,960) Net unrealized gain/(loss) on investments 4,027 5,119 (489) Gain on preferred stock reacquisition 3,722 - - Other adjustments, net (262) (23) (1,217) Balance at end of year $ 264,044 $ 248,434 $ 190,742 The accompanying notes are an integral part of the consolidated financial statements. F-118 Metropolitan Edison Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) For The Years Ended December 31, 1996 1995 1994 Operating Activities: Net income $ 69,067 $ 148,540 $ 731 Adjustments to reconcile income to cash provided: Depreciation and amortization 104,820 84,848 80,501 Amortization of property under capital leases 15,704 13,667 14,795 Three Mile Island Unit 2 costs - (118,209) 127,640 Voluntary enhanced retirement programs 26,204 - 35,246 Nuclear outage maintenance costs, net 6,215 (5,931) 5,895 Deferred income taxes and investment tax credits, net 25,168 68,827 (53,993) Deferred energy costs, net (448) (1,041) (15,518) Accretion income - - (1,114) Allowance for other funds used during construction (540) (1,304) (1,978) Changes in working capital: Receivables 8,490 (19,130) 5,498 Materials and supplies (1,611) 7,053 944 Special deposits and prepayments (10,501) 1,615 (4,593) Payables and accrued liabilities (17,714) 11,478 28,364 Nonutility generation contract buyout costs (43,318) (21,499) - Other, net (15,964) (36,318) 7,753 Net cash provided by operating activities 165,572 132,596 230,171 Investing Activities: Cash construction expenditures (76,660) (112,554) (159,717) Contributions to decommissioning trusts (17,057) (13,485) (10,633) Other, net (1,087) (300) 79 Net cash used for investing activities (94,804) (126,339) (170,271) Financing Activities: Issuance of long-term debt - 87,911 49,687 Increase/(Decrease) in notes payable, net 28,277 22,390 (81,600) Retirement of long-term debt (15,019) (40,519) (26,016) Capital lease principal payments (15,171) (12,531) (15,168) Issuance of company-obligated mandatorily redeemable preferred securities - - 96,732 Redemption of preferred stock (7,820) - (36,595) Dividends paid on preferred stock (944) (944) (3,632) Dividends paid on common stock (60,000) (95,000) (35,000) Contribution from parent corporation - 25,000 - Net cash required by financing activities (70,677) (13,693) (51,592) Net increase/(decrease) in cash and temporary cash investments from above activities 91 (7,436) 8,308 Cash and temporary cash investments, beginning of year 1,810 9,246 938 Cash and temporary cash investments, end of year $ 1,901 $ 1,810 $ 9,246 Supplemental Disclosure: Interest paid $ 59,697 $ 57,606 $ 77,636 Income taxes paid $ 39,278 $ 47,343 $ 15,179 New capital lease obligations incurred $ 1,417 $ 22,316 $ 3,126 The accompanying notes are an integral part of the consolidated financial statements. F-119 Metropolitan Edison Company and Subsidiary Companies SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In Thousands) Column A Column B Column C Column D Column E Additions Balance (1) (2) at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions of Period Year ended December 31, 1996 Allowance for doubtful accounts $3,072 $6,460 $1,651(a) $8,011(b) $3,172 Allowance for inventory obsolescence 3,176 - 4(c) 1,316(d) 1,864 Year ended December 31, 1995 Allowance for doubtful accounts $4,889 $3,040 $1,793(a) $6,650(b) $3,072 Allowance for inventory obsolescence 4,575 - - 1,399(d) 3,176 Year ended December 31, 1994 Allowance for doubtful accounts $4,889 $5,525 $1,573(a) $7,098(b) $4,889 Allowance for inventory obsolescence 5,681 - 466(c) 1,572(d) 4,575 (a) Recovery of accounts previously written off. (b) Accounts receivable written off. (c) Sale of inventory previously written off. (d) Inventory written off. F-120 Pennsylvania Electric Company and Subsidiary Companies COMPANY STATISTICS For The Years Ended December 31, 1996 1995 1994 1993 1992 1991 Capacity at Company Peak (in MW): Company owned 2,365 2,365 2,369 2,369 2,371 2,512 Contracted 782 868 778 636 418 224 Total capacity (a) 3,147 3,233 3,147 3,005 2,789 2,736 Hourly Peak Load (in MW): Summer peak 2,410 2,495 2,309 2,208 2,140 2,153 Winter peak 2,574 2,589 2,514 2,342 2,355 2,325 Reserve at company peak (%) 22.3 24.9 25.2 28.3 18.4 17.7 Load factor (%) (b) 71.1 67.6 69.4 70.5 69.3 70.6 Sources of Energy (in thousands of MWH): Coal 11,268 11,237 10,263 10,703 11,329 11,187 Nuclear 1,775 1,597 1,647 1,488 1,730 1,412 Gas, hydro & oil 95 (95) 120 73 75 36 Net generation 13,138 12,739 12,030 12,264 13,134 12,635 Utility purchases and interchange 2,268 3,071 2,468 2,219 2,723 2,197 Nonutility purchases 3,201 2,796 2,236 1,940 1,463 1,220 Total sources of energy 18,607 18,606 16,734 16,423 17,320 16,052 Company use, line loss, etc (2,932) (2,751) (2,248) (2,256) (2,289) (1,992) Total electric energy sales 15,675 15,855 14,486 14,167 15,031 14,060 Fuel Expense (in millions): Coal $164 $164 $163 $174 $168 $169 Nuclear 10 10 10 8 9 9 Gas & oil 2 1 2 1 1 1 Total $176 $175 $175 $183 $178 $179 Power Purchased and Interchanged (in millions): Utility purchases and interchange $ 18 $ 43 $ 35 $ 31 $ 51 $ 45 Nonutility purchases 192 158 123 104 77 61 Total $210 $201 $158 $135 $128 $106 Electric Energy Sales (in thousands of MWH): Residential 3,897 3,765 3,773 3,715 3,590 3,553 Commercial 4,044 3,922 3,794 3,651 3,488 3,475 Industrial 4,563 4,463 4,449 4,346 4,589 4,718 Other 814 857 958 568 585 666 Sales to customers 13,318 13,007 12,974 12,280 12,252 12,412 Sales to other utilities 2,357 2,848 1,512 1,887 2,779 1,648 Total 15,675 15,855 14,486 14,167 15,031 14,060 Operating Revenues (in millions): Residential $ 339 $322 $321 $308 $298 $290 Commercial 302 287 279 261 248 244 Industrial 249 237 237 227 233 236 Other 36 39 45 31 27 32 Sales to customers 926 885 882 827 806 802 Sales to other utilities 53 68 36 52 62 43 Total electric energy sales 979 953 918 879 868 845 Other revenues 41 28 27 29 28 21 Total $1,020 $981 $945 $908 $896 $866 Price per KWH (in cents): Residential 8.70 8.52 8.51 8.30 8.27 8.16 Commercial 7.48 7.29 7.34 7.17 7.11 7.01 Industrial 5.44 5.33 5.32 5.24 5.08 4.99 Total sales to customers 6.95 6.79 6.80 6.74 6.58 6.46 Total electric energy sales 6.24 6.00 6.34 6.21 5.77 6.00 Kilowatt-hour Sales per Residential Customer 7,857 7,620 7,678 7,607 7,393 7,369 Customers at Year-End (in thousands) 573 571 567 563 559 555 (a) Winter ratings at December 31, 1996 of owned and contracted capacity were 2,365 MW and 866 MW, respectively. (b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year. F-121 Pennsylvania Electric Company and Subsidiary Companies SELECTED FINANCIAL DATA (In Thousands) For the Years Ended December 31, 1996* 1995** 1994*** 1993 1992 1991**** Operating revenues $1,019,645 $ 981,329 $ 944,744 $ 908,280 $ 896,337 $ 865,552 Other operation and maintenance expense 293,868 266,347 294,316 241,252 226,179 234,648 Net income 69,809 111,010 31,799 95,728 99,744 106,595 Earnings available for common stock 73,872 109,466 28,862 90,741 94,080 100,406 Net utility plant in service 1,715,670 1,692,850 1,621,818 1,542,276 1,473,293 1,419,726 Total assets 2,535,065 2,473,570 2,381,054 2,301,340 1,892,715 1,862,249 Long-term debt 656,459 642,487 616,490 524,491 582,647 542,392 Long-term obligations under capital leases 4,129 5,277 6,741 7,745 7,691 8,260 Company-obligated mandatorily redeemable preferred securities 105,000 105,000 105,000 - - - Capital expenditures 114,672 130,512 174,464 150,252 110,629 101,328 Return on average common equity 10.0% 15.8% 4.2% 13.5% 14.5% 15.1% Number of employees 2,071 2,665 3,031 3,539 3,551 3,537 * Results for 1996 reflect a decrease in earnings of $19.7 million (after-tax) due to charges related to voluntary enhanced retirement programs ($33.6 million). ** Results for 1995 reflect a the reversal of $32.1 million (after-tax) of certain TMI-2 retirement costs written off in 1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this increase was a charge to income of $2.7 million (after-tax) of TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. *** Results for 1994 reflect a net decrease in earnings of $61.8 million (after-tax) due to a write-off of certain future TMI-2 retirement costs ($32.1 million); charges for costs related to early retirement programs ($25.6 million); a write-off of postretirement benefit costs believed not probable of recovery in rates ($10.6 million); and net interest income from refunds of previously paid federal income taxes related to the tax retirement of TMI-2 ($6.5 million). **** Results for 1991 reflect an increase in earnings of $16.2 million (after-tax) for an accounting change recognizing unbilled revenues and a decrease in earnings of $16.8 million (after-tax) for estimated TMI-2 costs. F-122 Pennsylvania Electric Company and Subsidiary Companies QUARTERLY FINANCIAL DATA (UNAUDITED) First Quarter Second Quarter In Thousands 1996 1995 1996 1995 Operating revenues $269,329 $253,412 $246,788 $238,451 Operating income 46,660 46,110 37,508 37,218 Net income 30,515 30,566 21,609 20,276 Earnings available for common stock 30,129 30,180 21,223 19,890 Third Quarter Fourth Quarter In Thousands 1996* 1995** 1996 1995 Operating revenues $256,143 $249,234 $247,385 $240,232 Operating income 19,230 30,911 30,311 27,822 Net income 2,865 50,015 14,820 10,153 Earnings available for common stock 2,479 49,629 20,041 9,767 * Results for the third quarter of 1996 reflect charges of $19.7 million (after-tax) for costs related to voluntary enhanced retirement programs. ** Results for the third quarter of 1995 reflect the reversal of $32.1 million (after-tax) of certain future TMI-2 retirement costs written off in the second quarter of 1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this increase was a charge to income of $2.7 million (after-tax) of TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. F-123
Pennsylvania Electric Company and Subsidiary Companies REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Pennsylvania Electric Company Reading, Pennsylvania We have audited the consolidated financial statements and financial statement schedule of Pennsylvania Electric Company and Subsidiary Companies as listed in the index on page F-1 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pennsylvania Electric Company and Subsidiary Companies as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. New York, New York February 5, 1997 F-124 Pennsylvania Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF INCOME
(In Thousands) For The Years Ended December 31, 1996 1995 1994 Operating Revenues $1,019,645 $981,329 $944,744 Operating Expenses: Fuel 176,158 174,624 175,071 Power purchased and interchanged: Affiliates 3,529 5,927 6,310 Others 206,403 195,184 151,919 Deferral of energy costs, net 795 1,088 5,941 Other operation and maintenance 293,868 266,347 294,316 Depreciation and amortization 94,580 83,086 76,600 Taxes, other than income taxes 64,955 67,064 66,058 Total operating expenses 840,288 793,320 776,215 Operating Income Before Income Taxes 179,357 188,009 168,529 Income taxes 45,648 45,948 42,297 Operating Income 133,709 142,061 126,232 Other Income and Deductions: Allowance for other funds used during construction 173 2,006 1,841 Other income/(expense), net (825) 56,454 (71,287) Income taxes 99 (24,431) 31,369 Total other income and deductions (553) 34,029 (38,077) Income Before Interest Charges and Dividends on Preferred Securities 133,156 176,090 88,155 Interest Charges and Dividends on Preferred Securities Interest on long-term debt 49,654 49,875 46,439 Other interest 7,112 8,428 7,421 Allowance for borrowed funds used during construction (2,607) (2,411) (1,996) Dividends on company-obligated mandatorily redeemable preferred securities 9,188 9,188 4,492 Total interest charges and dividends on preferred securities 63,347 65,080 56,356 Net Income 69,809 111,010 31,799 Preferred stock dividends 1,503 1,544 2,937 Gain on preferred stock reacquisition 5,566 - - Earnings Available for Common Stock $ 73,872 $109,466 $ 28,862 The accompanying notes are an integral part of the consolidated financial statements. F-125 Pennsylvania Electric Company and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1996 1995 ASSETS Utility Plant: In service, at original cost $2,738,223 $2,667,842 Less, accumulated depreciation 1,022,553 974,992 Net utility plant in service 1,715,670 1,692,850 Construction work in progress 72,757 72,233 Other, net 22,910 30,876 Net utility plant 1,811,337 1,795,959 Other Property and Investments: Nuclear decommissioning trusts, at market 54,194 42,440 Other, net 7,271 6,545 Total other property and investments 61,465 48,985 Current Assets: Cash and temporary cash investments - 1,367 Special deposits 2,348 2,718 Accounts receivable: Customers, net 73,190 67,454 Other 15,151 29,033 Unbilled revenues 31,350 30,851 Materials and supplies, at average cost or less: Construction and maintenance 49,007 53,237 Fuel 9,924 11,285 Deferred energy costs - 9,335 Deferred income taxes - 4,602 Prepayments 36,930 10,328 Total current assets 217,900 220,210 Deferred Debits and Other Assets: Regulatory assets: Three Mile Island Unit 2 deferred costs 85,287 81,236 Income taxes recoverable through future rates 210,023 214,284 Other 67,128 19,485 Total regulatory assets 362,438 315,005 Deferred income taxes 67,099 78,754 Other 14,826 14,657 Total deferred debits and other assets 444,363 408,416 Total Assets $2,535,065 $2,473,570 The accompanying notes are an integral part of the consolidated financial statements. F-126 Pennsylvania Electric Company and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1996 1995 LIABILITIES AND CAPITAL Capitalization: Common stock $ 105,812 $ 105,812 Capital surplus 285,486 285,486 Retained earnings 363,702 327,814 Total common stockholder's equity 755,000 719,112 Cumulative preferred stock 16,681 36,777 Company-obligated mandatorily redeemable preferred securities 105,000 105,000 Long-term debt 656,459 642,487 Total capitalization 1,533,140 1,503,376 Current Liabilities: Securities due within one year 26,010 75,009 Notes payable 107,680 27,100 Obligations under capital leases 15,881 22,751 Accounts payable: Affiliates 20,432 13,806 Other 53,424 66,687 Taxes accrued 11,223 16,019 Interest accrued 19,192 19,567 Vacations accrued 5,172 9,976 Other 12,052 19,448 Total current liabilities 271,066 270,363 Deferred Credits and Other Liabilities: Deferred income taxes 473,268 462,354 Unamortized investment tax credits 42,095 45,114 Three Mile Island Unit 2 future costs 107,652 103,271 Nuclear fuel disposal fee 14,406 13,680 Regulatory liabilities 31,694 33,941 Other 61,744 41,471 Total deferred credits and other liabilities 730,859 699,831 Commitments and Contingencies (Note 14) Total Liabilities and Capital $2,535,065 $2,473,570 The accompanying notes are an integral part of the consolidated financial statements. F-127 Pennsylvania Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (In Thousands) For the Years Ended December 31, 1996 1995 1994 Balance at beginning of year $ 327,814 $ 290,786 $ 328,290 Net income 69,809 111,010 31,799 Total 397,623 401,796 360,089 Cash dividends on capital stock: Cumulative preferred stock (at the annual rates indicated below): 4.40% Series B ($4.40 a share) (244) (250) (250) 3.70% Series C ($3.70 a share) (351) (359) (359) 4.05% Series D ($4.05 a share) (251) (258) (258) 4.70% Series E ($4.70 a share) (132) (135) (135) 4.50% Series F ($4.50 a share) (188) (193) (193) 4.60% Series G ($4.60 a share) (337) (349) (349) 8.36% Series H ($8.36 a share) - - (1,393) Common stock (not declared on a per share basis) (40,000) (75,000) (65,000) Total (41,503) (76,544) (67,937) Gain on preferred stock reacquisition 5,566 - - Net unrealized gain / (loss) on investments 2,014 2,593 (278) Other adjustments, net 2 (31) (1,088) Balance at end of year $ 363,702 $ 327,814 $ 290,786 The accompanying notes are an integral part of the consolidated financial statements. F-128 Pennsylvania Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) For The Years Ended December 31, 1996 1995 1994 Operating Activities: Net income $ 69,809 $ 111,010 $ 31,799 Adjustments to reconcile income to cash provided: Depreciation and amortization 89,021 77,635 69,615 Amortization of property under capital leases 8,733 7,777 8,553 Three Mile Island Unit 2 costs - (51,796) 56,304 Voluntary enhanced retirement programs 33,626 - 44,856 Nuclear outage maintenance costs, net 3,099 (2,901) 2,862 Deferred income taxes and investment tax credits, net 19,208 42,514 (50,451) Deferred energy costs, net 731 1,491 6,221 Accretion income - - (200) Allowance for other funds used during construction (173) (2,006) (1,842) Changes in working capital: Receivables 7,648 (7,713) (15,945) Materials and supplies 5,591 4,912 (1,849) Special deposits and prepayments (26,232) (5,078) 1,644 Payables and accrued liabilities (52,958) 8,241 (12,804) Nonutility generation contract buyout costs (11,700) - - Other, net (7,746) 1,178 12,803 Net cash provided by operating activities 138,657 185,264 151,566 Investing Activities: Cash construction expenditures (114,672) (130,512) (174,464) Contributions to decommissioning trusts (5,263) (5,263) (5,705) Other, net (684) (323) 134 Net cash used for investing activities (120,619) (136,098) (180,035) Financing Activities: Issuance of long-term debt 39,513 197,997 129,100 Increase/(Decrease) in notes payable, net 80,580 (83,952) 8,774 Retirement of long-term debt (75,009) (99,319) (108,008) Capital lease principal payments (8,418) (7,172) (8,734) Issuance of company-obligated mandatorily redeemable preferred securities - - 101,185 Redemption of preferred stock (14,527) - (26,168) Dividends paid on preferred stock (1,544) (1,544) (3,111) Dividends paid on common stock (40,000) (75,000) (65,000) Contribution from parent corporation - 20,000 - Net cash required by financing activities (19,405) (48,990) 28,038 Net decrease in cash and temporary cash investments from above activities (1,367) 176 (431) Cash and temporary cash investments, beginning of year 1,367 1,191 1,622 Cash and temporary cash investments, end of year $ - $ 1,367 $ 1,191 Supplemental Disclosure: Interest paid $ 63,162 $ 60,524 $ 55,221 Income taxes paid $ 43,098 $ 43,685 $ 59,881 New capital lease obligations incurred $ 715 $ 11,160 $ 2,400 The accompanying notes are an integral part of the consolidated financial statements. F-129 Pennsylvania Electric Company and Subsidiary Companies SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In Thousands) Column A Column B Column C Column D Column E Additions Balance (1) (2) at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions of Period Year ended December 31, 1996 Allowance for doubtful accounts $3,152 $5,961 $1,973(a) $7,268(b) $3,818 Allowance for inventory obsolescence - 650 - 464(c) 186 Year ended December 31, 1995 Allowance for doubtful accounts $1,182 $6,518 $1,516(a) $6,064(b) $3,152 Allowance for inventory obsolescence - - - - - Year ended December 31, 1994 Allowance for doubtful accounts $1,329 $3,133 $1,486(a) $4,766(b) $1,182 Allowance for inventory obsolescence - - - - - (a) Recovery of accounts previously written off. (b) Accounts receivable written off. (c) Inventory written off. F-130
EX-99 2 EXHIBIT INDEX Page 1 of 2 Exhibits to be filed with 1996 10-K 3-A-2 Articles of Incorporation of GPU, Inc. as amended August 1, 1996. 4-A-43 Fifty-first Supplemental Indenture of JCP&L, dated August 15, 1996. 4-B-35 Supplemental Indenture of Met-Ed dated August 15, 1996. 4-C-12 Supplemental Indenture of Penelec dated August 15, 1996. 10-A GPU System Companies Deferred Compensation Plan dated August 1, 1996. 10-B GPU System Companies Master Directors' Benefits Protection Trust dated November 7, 1996. 10-C GPU System Companies Master Executives' Benefits Protection Trust dated August 1, 1996. 10-G Incentive Compensation Plan for Elected Officers of JCP&L dated August 1, 1996. 10-H Incentive Compensation Plan for Elected Officers of Met-Ed dated August 1, 1996. 10-I Incentive Compensation Plan for Elected Officers of Penelec dated August 1, 1996. 10-J Deferred Remuneration Plan for Outside Directors of JCP&L dated November 7, 1996. 10-K JCP&L Supplemental and Excess Benefits Plan dated August 1, 1996. 10-L Met-Ed Supplemental and Excess Benefits Plan dated August 1, 1996. 10-M Penelec Supplemental and Excess Benefits Plan dated August 1, 1996. 10-N Letter agreements dated November 1, 1996 relating to supplemental pension benefits for J.R. Leva. 10-O Letter agreement dated November 1, 1996 relating to terms of employment and pension benefits for I.H. Jolles. 10-P Letter agreement dated November 1, 1996 relating to supplemental pension benefits for J.G. Graham. Page 2 of 2 Exhibits to be filed with 1996 10-K 10-Q GPU, Inc. Restricted Stock Plan for Outside Directors dated November 7, 1996. 10-R Retirement Plan for Outside Directors of GPU, Inc. dated November 7, 1996. 10-S Deferred Remuneration Plan for Outside Directors of GPU, Inc. dated November 7, 1996. 10-CC GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries as amended and restated to reflect amendments through August 1, 1996. 21 Subsidiaries of the Registrant A - JCP&L B - Met-Ed C - Penelec 23 Consent of Independent Accountants A - GPU, Inc. B - JCP&L C - Met-Ed D - Penelec EX-3.A2 3 EXHIBIT 3A2 Exhibit 3-A-2 Articles of Incorporation of GPU, Inc. Pursuant to Article VIII of the Business Corporation Law, Act 1933, May 5 P. L. 364, As Amended (As Amended August 1, 1996) Articles of Incorporation 1. The name of the Corporation is GPU, Inc. 2. The location and post office address of the Corporation's initial registered office in this Commonwealth is 2800 Pottsville Pike, Muhlenberg Township, Berks County, Pennsylvania 19605. 3. The purposes of the Corporation are: (a) To purchase, hold, acquire and dispose of the stock, bonds and other evidences of indebtedness of any corporation or association, domestic or foreign, and to pay for the same in cash or in stock, bonds, notes or other obligations of the Corporation, or otherwise, and while the owner of such stock, bonds, or other evidences of indebtedness, to possess and exercise in respect thereof all the rights, powers and privileges of individual owners or holders thereof and to exercise any and all voting power thereon. (b) To aid in any manner permitted by law any corporation or association in whose shares of stock, certificates of interest, bonds, debentures, notes or other obligations or securities the Corporation may be interested, and to do any other act or thing permitted by law for the preservation, protection, improvement or enhancement of the value of such shares of stock or other certificates of interest, bonds, debentures, notes, or other obligations or securities, or the property represented thereby or securing the same or owned, held or possessed by such other corporation or association. (c) To borrow or raise moneys for any of the purposes of the Corporation and from time to time, without limit as to amount, to draw, make, accept, endorse, execute and issue bonds, debentures, notes, drafts, bills of exchange, warrants and other negotiable or non-negotiable instruments and evidences of indebtedness; and to secure the payment thereof and of the interest thereon by mortgage upon or pledge of, or by conveyance, or assignment in trust of, the whole of any part of the property and franchises of the Corporation, real, personal and mixed, tangible or intangible, and wheresoever situate, whether at the time owned or thereafter acquired; and to issue, sell, negotiate, pledge or otherwise dispose of such bonds or other obligations of the Corporation for its corporate purposes. Nothing herein, however, shall be deemed to empower the Corporation to transact business which under the laws of the Commonwealth of Pennsylvania may not be transacted by a corporation organized under the Business Corporation Law of Pennsylvania. (d) To make any guarantee respecting dividends, stocks, bonds, contracts, or other obligations so far as the same may be permitted by corporations organized under the Business Corporation Law of Pennsylvania. 1 (e) To acquire all or any part of the goodwill, rights, property, and business of any person, firm, association, or corporation heretofore, now or hereafter engaged in any business similar to or the same as any business which the Corporation has or may have the power to conduct; to pay for the same in cash or in stock, bonds, notes or other obligations of the Corporation, or otherwise; to hold, utilize and in any manner dispose of the whole or any part of the goodwill, right, property and business so acquired; to assume in connection therewith the whole or any part of the liabilities and obligations of any such person, firm, association or corporation; and to conduct in any lawful manner the whole or any part of the business acquired. (f) To loan money secured by mortgages on personal property or real estate, to buy, sell and deal in bonds, notes and loans secured by mortgages, or other liens on personal property or real estate, to purchase, hold, improve, sell or exchange real estate, and to purchase, sell and deal in notes, bonds, stocks, securities and investments of any kind, with full power to borrow such moneys as may be required for the purpose of its business. (g) To buy, hold, cancel, sell, reissue, transfer and otherwise acquire and dispose of, shares of its stock and its bonds, debentures, notes and other obligations and securities, from time to time, to such extent, in such manner and upon such terms, as its Board of Directors may determine, subject to such restrictions as may be imposed by the laws of the Commonwealth of Pennsylvania. (h) To enter into, make and perform any lawful contracts of every kind and description with any person, firm, association, corporation, municipality, body politic, county, State or government, necessary or proper for, or incidental to, the business which the Corporation is authorized to transact, or the carrying out of its purpose or objects, or the exercise of its corporate powers, or which may be made, entered into and performed by a corporation organized under the Business Corporation Law of Pennsylvania. (i) To have one or more offices within the Commonwealth of Pennsylvania and one or more offices outside of the Commonwealth of Pennsylvania and to conduct its business in all its branches in the Commonwealth of Pennsylvania and in other States and in territories and dependencies of the United States and foreign countries. (j) To purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability. 2 (k) To have unlimited power to engage in and to do any lawful act concerning any and all lawful business for which corporations may be incorporated under the Business Corporation Law of Pennsylvania under the provisions of which the Corporation is incorporated. The foregoing classes shall be construed as both purposes and powers and it is hereby expressly provided that the foregoing enumeration of specific power shall in no way limit or restrict in any manner the powers of the Corporation as the same may now or hereafter be conferred by law. 4. The duration of the Corporation is perpetual. 5. The amount of the capital stock of the Corporation is to be $875,000,000 consisting of 350,000,000 shares of common stock of the par value of $2.50 each. 6. The private property of the stockholders shall not be subject to the payment of corporate debts. 7. The name and address of the incorporator and the number of the class of shares subscribed by him are: W.G. Kuhns 100 shares of common stock 100 Essex Dr. ($2.50 par value) Tenafly, New Jersey 8. Except as otherwise provided by law, the Board of Directors of the Corporation shall have the power and authority to make, amend and repeal the By-Laws of the Corporation, subject to the power of the shareholders to change such action. 9. No holder of common stock of the Corporation shall have, as such holder, any preemptive right to purchase any common stock or other shares or securities of the Corporation. 10. (a) At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the Pennsylvania Business Corporation Law. The directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II, and Class III. The term of office of the initial Class I directors shall expire at the next succeeding annual meeting of stockholders, the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders and the term of office of the initial Class III directors shall expire at the next succeeding annual meeting of the stockholders. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors elected at the May 2, 1988 annual meeting and 3 designated as members of such Class. At each annual meeting after the May 2, 1988 annual meeting, directors to replace those of a Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been elected and shall qualify. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. When the number of directors is increased by the Board and any newly created directorships are filled by the Board, there shall be no classification of the additional directors until the next annual meeting of stockholders. (b) The number of directors constituting the entire Board of Directors shall be not less than five nor more than sixteen as may be fixed from time to time by resolution adopted by a majority of the entire Board of Directors; provided, however, that no decrease in the number of directors constituting the entire Board of Directors shall shorten the term of any incumbent director. In the event the number of directors elected at an annual meeting of stockholders is less than sixteen, a majority of the entire Board of Directors may at any time increase the number of directors to not more than sixteen and, by vote of a majority of the Board of Directors, elect a new director or directors to fill any such newly created directorship. Any such new director shall hold office until the next annual meeting of stockholders and until his successor shall have been duly elected and qualified. Each director shall be at least 21 years of age and shall be a stockholder of the Corporation. (c) Vacancies occurring on the Board of Directors for any reason may be filled by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy shall be elected to hold office until the next succeeding annual meeting of stockholders of the Corporation and until his or her successor shall have been duly elected and qualified. (d) Notwithstanding anything contained in these Articles of Incorporation or specified by law to the contrary, the vote of the holders of not less than two-thirds of the then outstanding shares of common stock of the Corporation entitled to vote thereon shall be required to alter, amend, or repeal this Article 10 or to adopt any provision inconsistent herewith. 11. At all elections of directors each holder of record of shares of common stock then entitled to vote, shall be entitled to cast as many votes as shall equal the number of votes which (except for this provision) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected, and he may cast all such votes for a single director or may distribute them 4 among the number to be voted for, or any two or more of them, as he may see fit. Except as otherwise provided by law or by these Articles, each holder of record of shares of common stock entitled to vote at any meeting of stockholders shall be entitled to one vote for every share of common stock standing in his name on the books of the Corporation. All elections shall be determined by a plurality vote, and, except as otherwise provided by law or by these Articles, all other matters shall be determined by a vote of the holders of a majority of these shares of common stock present or represented at a meeting and voting on such questions. Except as otherwise provided by law the holders of a majority of the shares of common stock issued and outstanding and entitled to vote, present in person or by proxy, shall be requisite for and shall constitute a quorum at any meeting of the stockholders. 12. Unless the By-Laws of the Corporation shall at the time otherwise expressly provide, the Board of Directors shall have power: (a) To designate five or more of their number to constitute an Executive Committee which Committee, to such extent as may be provided by the By-Laws of the Corporation, shall have, and may exercise, any or all of the powers of the Board of Directors in the management of the business and affairs of the Corporation. (b) To issue, without the vote or consent of the stockholders, common stock, now or hereafter authorized, for cash or in payment for property or services, or for other assets or securities, including cash, necessary or desirable to be purchased or acquired from time to time for the lawful purposes of the Corporation, or to the extent permitted by law, as a dividend upon the common stock of the Corporation. 13. The Corporation shall not issue nonvoting stock. 14. The Corporation shall, not less than once annually, make periodic reports to holders of its stock and securities which shall include profit and loss statement and balance sheets prepared in accordance with sound business and accounting practice, and audited by independent public accountants. 15. Unless otherwise provided by law, any contract, transaction or act of the Corporation or of the Board of Directors, which shall be ratified by a majority of a quorum of the stockholders entitled to vote at any annual meeting or at any special meeting called for that purpose, shall be as valid and binding as though ratified by every stockholder of the Corporation; provided, however, that any failure of the stockholders to approve or ratify such contract, transaction or act, when and if submitted, shall not be deemed in any way to invalidate the same or to deprive the Corporation, its directors or officers of their right to proceed with such contract, transaction or action. 5 16. The Corporation reserves the right to amend, alter, change, or repeal any provision contained in these Articles in the manner now or hereafter prescribed by statute, and all rights hereby conferred upon the stockholders are granted subject to this reservation. 6 EX-4.A43 4 EXHIBIT 4A43 Exhibit 4-A-43 _________________________________________________________ _________________________________________________________ JERSEY CENTRAL POWER & LIGHT COMPANY TO UNITED STATES TRUST COMPANY OF NEW YORK, Trustee __________ SUPPLEMENTAL INDENTURE __________ Dated as of August 15, 1996 _________________________________________________________ _________________________________________________________ MORTGAGE FIFTY-FIRST SUPPLEMENTAL INDENTURE, dated as of the 15th day of August, 1996, made and entered into by and between JERSEY CENTRAL POWER & LIGHT COMPANY, a corporation organized and existing under the laws of the State of New Jersey (hereinafter called the "Company"), party of the first part, and UNITED STATES TRUST COMPANY OF NEW YORK, a bank and trust company organized under the State of New York bank law, with its principal corporate trust office at 114 West 47th Street, New York, New York, 10036-1532, as Successor Trustee under the Original Indenture hereinafter mentioned (the Successor Trustee being hereinafter sometimes called "Trustee"), party of the second part. WHEREAS, the Company has heretofore executed and delivered to City Bank Farmers Trust Company an Indenture dated as of March 1, 1946 (hereinafter called the "Original Indenture"), to secure the principal of and the interest and premium (if any) on all bonds at any time issued and outstanding thereunder, to declare the terms and conditions upon which bonds are to be issued thereunder and to subject to the lien thereof certain property therein described; and WHEREAS, United States Trust Company of New York is now acting as Successor Trustee under the Original Indenture and the indentures supplemental thereto hereinafter enumerated; and WHEREAS, the Original Indenture has heretofore been supplemented by a First Supplemental Indenture dated as of December 1, 1948, a Second Supplemental Indenture dated as of April 1, 1953, a Third Supplemental Indenture dated as of June 1, 1954, a Fourth Supplemental Indenture dated as of May 1, 1955, a Fifth Supplemental Indenture dated as of August 1, 1956, a Sixth Supplemental Indenture dated as of July 1, 1957, a Seventh Supplemental Indenture dated as of July 1, 1959, an Eighth Supplemental Indenture dated as of June 1, 1960, a Ninth Supplemental Indenture dated as of November 1, 1962, a Tenth Supplemental Indenture dated as of October 1, 1963, an Eleventh Supplemental Indenture dated as of October 1, 1964, a Twelfth Supplemental Indenture dated as of November 1, 1965, a Thirteenth Supplemental Indenture dated as of August 1, 1966, a Fourteenth Supplemental Indenture dated as of September 1, 1967, a Fifteenth Supplemental Indenture dated as of October 1, 1968, a Sixteenth Supplemental Indenture dated as of October 1, 1969, a Seventeenth Supplemental Indenture dated as of June 1, 1970, an Eighteenth Supplemental Indenture dated as of December 1, 1970, a Nineteenth Supplemental Indenture dated as of February 1, 1971, a Twentieth Supplemental Indenture dated as of November 1, 1971, a Twenty-first Supplemental Indenture dated as of August 1, 1972, a Twenty-second Supplemental Indenture dated as of August 1, 1973, a Twenty-third Supplemental Indenture dated as of October 1, 1973, a Twenty-fourth Supplemental Indenture dated as of December 1, 1973, a Twenty-fifth Supplemental Indenture dated as of November 1, 1974, a Twenty-sixth Supplemental Indenture dated as of March 1, 1975, a Twenty-seventh Supplemental Indenture dated - 3 - as of July 1, 1975, a Twenty-eighth Supplemental Indenture dated as of October 1, 1975, a Twenty-ninth Supplemental Indenture dated as of February 1, 1976, a Supplemental Indenture No. 29A dated as of May 31, 1976, a Thirtieth Supplemental Indenture dated as of June 1, 1976, a Thirty-first Supplemental Indenture dated as of May 1, 1977, a Thirty-second Supplemental Indenture dated as of January 20, 1978, a Thirty-third Supplemental Indenture dated as of January 1, 1979, a Thirty-fourth Supplemental Indenture dated as of June 1, 1979, a Thirty-fifth Supplemental Indenture dated as of June 15, 1979, a Thirty-sixth Supplemental Indenture dated as of October 1, 1979, a Thirty-seventh Supplemental Indenture dated as of September 1, 1984, a Thirty-eighth Supplemental Indenture dated as of July 1, 1985, a Thirty-ninth Supplemental Indenture dated as of April 1, 1988, a Fortieth Supplemental Indenture dated as of June 14, 1988, a Forty-first Supplemental Indenture dated as of April 1, 1989, a Forty-second Supplemental Indenture dated as of July 1, 1989, a Forty-third Supplemental Indenture dated as of March 1, 1991, a Forty-fourth Supplemental Indenture dated as of March 1, 1992, a Forty-fifth Supplemental Indenture dated as of October 1, 1992, a Forty-sixth Supplemental Indenture dated as of April 1, 1993, a Forty-seventh Supplemental Indenture dated as of April 10, 1993, a Forty-eighth Supplemental Indenture dated as of April 15, 1993, a Forty-ninth Supplemental Indenture dated as of October 1, 1993, and a Fiftieth Supplemental Indenture dated as of August 1, 1994 (hereinafter respectively called "First Supplemental Indenture," "Second Supplemental Indenture," "Third Supplemental Indenture," "Fourth Supplemental Indenture," "Fifth Supplemental Indenture," "Sixth Supplemental Indenture," "Seventh Supplemental Indenture," "Eighth Supplemental Indenture," "Ninth Supplemental Indenture," "Tenth Supplemental Indenture," "Eleventh Supplemental Indenture," "Twelfth Supplemental Indenture," "Thirteenth Supplemental Indenture," "Fourteenth Supplemental Indenture," "Fifteenth Supplemental Indenture," "Sixteenth Supplemental Indenture," "Seventeenth Supplemental Indenture," "Eighteenth Supplemental Indenture," "Nineteenth Supplemental Indenture," "Twentieth Supplemental Indenture," "Twenty-first Supplemental Indenture," "Twenty-second Supplemental Indenture," "Twenty-third Supplemental Indenture," "Twenty-fourth Supplemental Indenture," "Twenty-fifth Supplemental Indenture," "Twenty-sixth Supplemental Indenture," "Twenty-seventh Supplemental Indenture," "Twenty-eighth Supplemental Indenture," "Twenty-ninth Supplemental Indenture," "Supplemental Indenture No. 29A," "Thirtieth Supplemental Indenture," "Thirty-first Supplemental Indenture," "Thirty-second Supplemental Indenture," "Thirty-third Supplemental Indenture," "Thirty-fourth Supplemental Indenture," "Thirty-fifth Supplemental Indenture," "Thirty-sixth Supplemental Indenture," "Thirty-seventh Supplemental Indenture," "Thirty-eighth Supplemental Indenture," "Thirty-ninth Supplemental Indenture," "Fortieth Supplemental Indenture," "Forty-first Supplemental Indenture," "Forty-second Supplemental - 4 - Indenture," "Forty-third Supplemental Indenture," "Forty-fourth Supplemental Indenture," "Forty-fifth Supplemental Indenture," "Forty-sixth Supplemental Indenture," "Forty-seventh Supplemental Indenture," "Forty-eighth Supplemental Indenture", "Forty-ninth Supplemental Indenture", and "Fiftieth Supplemental Indenture", collectively called "the Supplemental Indentures"), for the purposes therein expressed; and WHEREAS, the Original Indenture has been recorded in the proper recording offices of the following counties in the State of New Jersey and the Commonwealth of Pennsylvania in Books of Mortgages at the pages respectively stated as follows: NEW JERSEY Mortgage County Book Page Burlington 360 1 &c Camden 2423 37 &c Essex I-103 155 &c Hunterdon 439 284 &c Mercer 732 280 &c Middlesex 871 101 &c Monmouth 1365 1 &c Morris Z-16 1 &c Ocean 385 33 &c Passaic B-24 1 &c Somerset 386 1 &c Sussex 394 148 &c Union 1474 1 &c Warren 279 191 &c PENNSYLVANIA Armstrong 213 421 &c Bucks 2133 151 &c Dauphin N52 1 &c Indiana 200 371 &c Montgomery 7537 1287 &c Northampton 1159 1 &c ; and WHEREAS, the Supplemental Indentures have been recorded in the proper recording offices of the appropriate counties in the State of New Jersey and the Commonwealth of Pennsylvania; and - 5 - WHEREAS, the Original Indenture, as the same may be amended or supplemented from time to time by indentures supplemental thereto, is hereinafter referred to as "the Indenture"; and WHEREAS, the Original Indenture authorizes the Company and the Trustee to enter into supplemental indentures for the purpose, among others, of (i) conveying, transferring and assigning to the Trustee, and subjecting to the lien thereof, additional properties thereafter acquired by the Company, and (ii) curing an ambiguity or correcting or supplementing any provision contained in the Original Indenture; and WHEREAS, the Company desires to subject specifically to the lien of the Indenture certain property acquired by the Company and more particularly described in Schedule A; and WHEREAS, the provisions of Article XVII, Section 17.01(f) of the Original Indenture provide that indentures supplemental to the Original Indenture may be executed and delivered for any purpose not inconsistent with the terms of the Original Indenture or to cure any ambiguity or to correct or supplement any provision contained in the Original Indenture or in any supplemental indenture which may be defective or inconsistent with any other provision contained in the Original Indenture or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under the Original Indenture which shall not be inconsistent with the provisions of the Original Indenture and which shall not adversely affect the interests of the holders of the bonds; and WHEREAS, the Company desires to cure an ambiguity in Article I, Section 1.05(B)(2) of the Original Indenture relating to the identification and inclusion of property additions in officers' certificates of bondable value of property additions; and WHEREAS, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Original Indenture and pursuant to appropriate action of its Board of Directors, has fully resolved and determined to make, execute and deliver to the Trustee a Fifty-first Supplemental Indenture in the form hereof for the purposes herein provided; and WHEREAS, the Company represents that all conditions and requirements necessary to make this Fifty-first Supplemental Indenture, in the form and upon the terms hereof, a valid, binding and legal instrument, in accordance with its terms, and for the purposes herein expressed, have been done, performed and fulfilled, and the execution and delivery hereof, in the form and upon the terms hereof, have been in all respects duly authorized. - 6 - NOW THEREFORE, THIS FIFTY-FIRST SUPPLEMENTAL INDENTURE WITNESSETH: That Jersey Central Power & Light Company, in consideration of the premises, and the execution and delivery by the Trustee of this Fifty-first Supplemental Indenture and for other good and valuable considerations, receipt of which is hereby acknowledged, has granted, bargained, sold, aliened, enfeoffed, released, conveyed, mortgaged, assigned, transferred, pledged, set over and confirmed, and by these presents does grant, bargain, sell, alien, enfeoff, release, convey, mortgage, assign, transfer, pledge, set over and confirm unto United States Trust Company of New York, as Successor Trustee as aforesaid, and to its successors in the trust created by the Original Indenture and to its and their successors and assigns forever, all the following properties of the Company, that is to say: FIRST All property additions, as defined in and by Section 1.03 of the Original Indenture, acquired by the Company on or after August 1, 1994, and prior to August 15, 1996, and now owned by the Company. SECOND Also all property of the character and nature specified in the "Second," "Third," "Fourth," "Fifth," and "Sixth" subdivisions of the granting clauses of the Original Indenture. THIRD All those certain lots, tracts or parcels of real estate and interest more particularly and specifically described in Schedule A attached hereto and hereby made a part hereof. EXPRESSLY EXCEPTING AND EXCLUDING, HOWEVER, from this Fifty- first Supplemental Indenture and from the lien and operation of the Indenture, all property which, prior to the date of this Fifty-first Supplemental Indenture, shall have been released from the lien of, or disposed of by the Company in accordance with the provisions of the Indenture; and all the tracts or parcels of land and premises and all property of every kind and type excepted and excluded from, and not heretofore or hereby expressly subjected to, the lien of the Original Indenture by the terms thereof whether such property was owned by the Company at the date thereof or has been acquired since that date. SUBJECT, HOWEVER, except as otherwise expressly provided in this Fifty-first Supplemental Indenture, to the exceptions, reservations and matters recited in the Indenture, to the reservations, exceptions, limitations and restrictions contained in the several deeds, grants, franchises and contracts or other instruments through which the Company acquired or claims title to - 7 - the aforesaid property; and subject also to existing leases, to liens on easements or rights-of-way for transmission or distribution line purposes, to taxes and assessments not in default, to easements for alleys, streets, highways, rights-of- way and railroads that may run across or encroach upon said lands, to joint pole and similar agreements, to undetermined liens and charges, if any, incidental to the construction and other permissible encumbrances, as defined in the Original Indenture, and subject also to the provisions of Section 13.03 of the Original Indenture. In trust, nevertheless, upon the terms and trusts set forth in the Indenture. AND THIS FIFTY-FIRST SUPPLEMENTAL INDENTURE FURTHER WITNESSETH: That the Company, for the considerations aforesaid, hereby covenants and agrees to and with the Trustee and its successors in the trust under the Indenture, as follows: ARTICLE I. CONCERNING THE TRUSTEE. SECTION 1.01. The Trustee hereby accepts the properties hereby mortgaged and conveyed to it upon the trusts hereinbefore referred to and agrees to perform the same upon the terms and conditions set forth in the Indenture. SECTION 1.02. The Trustee shall not be responsible in any manner for or with respect to the validity or sufficiency of this Fifty-first Supplemental Indenture, or the due execution hereof by the Company, or for or with respect to the recitals and statements contained herein, all of which recitals and statements are made solely by the Company. ARTICLE II CURING AN AMBIGUITY IN ARTICLE I, SECTION 1.05 OF THE ORIGINAL INDENTURE SECTION 2.01. Pursuant to Article XVII, Section 17.01(f) of the Original Indenture, for the purpose of curing an ambiguity in Article I, Section 1.05 relating to the identification and inclusion of property additions in officers' certificates of bondable value of property additions, Section 1.05(B)(2) of the Original Indenture is hereby revised and restated in its entirety as follows: "(2) a brief identification, including the location, of the property additions then being certified to the Trustee; if any property included in such property additions is located on any - 8 - leasehold, other than those of the nature described in paragraph d) of the definition of property additions,stating that such leasehold extends beyond the date of maturity of all bonds then outstanding under this Indenture and all additional bonds applied for at the particular time, and that the amount then and theretofore included in property additions on account of leasehold estates or improvements, extensions or additions thereto, other than those of the nature described in paragraph (d) of the definition of property additions, does not in the aggregate exceed five per centum (5%) of the aggregate principal amount of all bonds then outstanding and all bonds which might then be authenticated and delivered hereunder pursuant to the provisions of Sections 4.03, 4.04 and 4.05 hereof; if any property included in such property additions is subject to a prior lien securing prior lien bonds which have not been described in accordance with clause (10) of this paragraph B in a preceding certificate delivered to the Trustee pursuant to this paragraph B, stating (i) the principal amount of prior lien bonds secured by such prior lien and then to become refundable prior lien bonds, and (ii) the aggregate principal amount of prior lien bonds then outstanding which became, at any previous time, refundable prior lien bonds, and (iii) stating that the inclusion of said property in the certificate does not result in a violation of the covenants contained in the first paragraph of Section 5.15 hereof; (i) no annual officers' certificate of bondable value of property additions shall include property additions made, constructed or acquired by the Company during the period prior to the date of the last preceding annual officers' certificate of bondable value of property additions delivered to the Trustee pursuant to this paragraph B, and (ii) each officers' certificate other than an annual officers' certificate of bondable value of property additions may include property additions made, constructed or acquired by the Company during the period subsequent to the date of the last preceding annual officers' certificate of bondable value of property additions delivered to the Trustee pursuant to this paragraph B, if such property additions have not been included in a previous certificate, except, in either case, (a) that such certificate may include property additions made, constructed or acquired by the Company prior to said dates if such property additions are subject to a prior lien and have not been included in a previous certificate, and (b) that any property additions acquired by the Company within 15 days preceding, or to be so acquired concurrently with the granting of any application in connection with which such officers' certificate is delivered to the Trustee, may, unless such property additions are to be acquired in exchange or substitution for bondable property, be certified to the Trustee as property additions in such officers' certificate and in such event shall be treated for all purposes of this Indenture has having been acquired on or before the date of such officers' certificate." - 9 - ARTICLE III. MISCELLANEOUS. SECTION 3.01. For all purposes hereof, except as the context may otherwise require, (a) all terms contained herein shall have the meanings given such terms in, and (b) all references herein to sections of the Original Indenture shall be deemed to be to such sections of, the Original Indenture as the same heretofore has been or hereafter may be amended by an indenture or indentures supplemental thereto. SECTION 3.02. As amended and supplemented by the aforesaid indentures supplemental thereto and by this Fifty-first Supplemental Indenture, the Original Indenture is in all respects ratified and confirmed and the Original Indenture and the aforesaid indentures supplemental thereto and this Fifty-first Supplemental Indenture shall be read, taken and construed as one and the same instrument. SECTION 3.03. This Fifty-first Supplemental Indenture shall be simultaneously executed in several counterparts, and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. IN WITNESS WHEREOF, JERSEY CENTRAL POWER & LIGHT COMPANY, party of the first part, has caused this instrument to be signed in its name and behalf by its President or a Vice President, and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary and United States Trust Company of New York, as Successor Trustee as aforesaid, the party of the second part, in token of its acceptance of the trust hereby created, has caused this instrument to be signed in its name and behalf by an Authorized Officer and its corporate seal to be hereunto affixed and attested by an Authorized Officer, all as of the day and year first above written. JERSEY CENTRAL POWER & LIGHT COMPANY By T. G. Howson Vice President ATTEST: M. A. Nalewako Assistant Secretary Signed, sealed and delivered by JERSEY CENTRAL POWER & LIGHT COMPANY in the presence of: - 10 - UNITED STATES TRUST COMPANY OF NEW YORK As Successor Trustee as aforesaid By Vice President ATTEST: Assistant Secretary Signed, sealed and delivered by UNITED STATES TRUST COMPANY OF NEW YORK in the presence of: - 11 - STATE OF NEW JERSEY : : ss: COUNTY OF MORRIS : On this _____ day of August, 1996, before me, B. E. Jost, a Notary Public for the State and County aforesaid, the undersigned officer, personally appeared T. G. Howson, who, to my satisfaction, acknowledged himself to be a Vice President of Jersey Central Power & Light Company, a corporation, and that he as such Vice President, being authorized to do so, executed the foregoing instrument for the purposes therein contained as the act of the corporation by signing his name as Vice President of the corporation. IN WITNESS WHEREOF, I hereunto set my hand and official seal. _________________________________ Notary Public [NOTARIAL SEAL] STATE OF NEW YORK : : ss. COUNTY OF NEW YORK : On this _____day of August, 1996, before me, _______________________, a Notary Public for the State and County aforesaid, the undersigned officer, personally appeared L. P. Young, who, to my satisfaction, acknowledged himself to be a Vice President of United States Trust Company of New York, a corporation, and that he as such Vice President, being authorized to do so, executed the foregoing instrument for the purposes therein contained as the act of the corporation by signing his name as Vice President of the corporation. IN WITNESS WHEREOF, I hereunto set my hand and official seal. _________________________________ Notary Public [NOTARIAL SEAL] - 12 - CERTIFICATE OF RESIDENCE United States Trust Company of New York, Successor Trustee within named, hereby certifies that its precise residence is 114 West 47th Street, in the Borough of Manhattan, in the City of New York, in the State of New York. UNITED STATES TRUST COMPANY OF NEW YORK By Vice President - 13 - COMMONWEALTH OF PENNSYLVANIA MONTGOMERY COUNTY PENNSYLVANIA - NEW JERSEY - MARYLAND INTERCONNECTION CONTROL CENTER: An undivided 7.50% interest of the Company in and to the following described real property: All that certain tract or parcel of ground with the buildings and improvements thereon, situate in the Township of Lower Providence, County of Montgomery, Commonwealth of Pennsylvania bounded and described in accordance with a survey and plan thereof made by George C. Beebe, Registered Professional Engineer, for Robert E. Lamb, Inc., Valley Forge, Pennsylvania, dated May 16, 1968, as follows: Beginning at a point at the intersection of the title line within the bed of Van Buren Avenue and the title line within the bed of Jefferson Avenue and extending thence from said point S. 42 degrees 00' W. 440 feet 0 inches to a point; thence N. 48 degrees 00' W. 440 feet 0 inches to a point; thence N. 42 degrees 00' E 75 feet 0 inches to a point; thence N. 48 degrees 00' W. 30 feet 0 inches to a point; thence N. 42 degrees 00' E. 365 feet 0 inches to a point on the title line within the bed of Van Buren Avenue and thence along the title line within the bed of Van Buren Avenue, S. 48 degrees 00' E. 470 feet 0 inches to the first mentioned point and place of beginning. Containing 4.696 acres, more or less. Subject to easements, rights, covenants, conditions and restrictions of record, if any, or otherwise visible. Being the same undivided 7.50% interest in the above described premises which was conveyed to the Company by PECO Energy Company, a Pennsylvania corporation, as Agent for members of the Pennsylvania-New Jersey-Maryland Interconnection, by deed dated July 13, 1995 and recorded in the Montgomery County Commissioners Registry on October 26, 1995 in Deed Book 5129, Page 1538 &c. Montgomery County Tax Parcel No. 43-00-15406-00-4. EX-4.B35 5 EXHIBIT 4B35 Exhibit 4-B-35 _________________________________________________________ _________________________________________________________ METROPOLITAN EDISON COMPANY TO UNITED STATES TRUST COMPANY OF NEW YORK, Trustee __________ SUPPLEMENTAL INDENTURE __________ Dated as of August 15, 1996 _________________________________________________________ _________________________________________________________ MORTGAGE THIS SUPPLEMENTAL INDENTURE, dated as of the 15th day of August, 1996, made and entered into by and between METROPOLITAN EDISON COMPANY, a corporation organized and existing under the laws of the Commonwealth of Pennsylvania (hereinafter called the "Company"), party of the first part, and UNITED STATES TRUST COMPANY OF NEW YORK, a bank and trust company organized under the State of New York bank law, with its principal corporate trust office at 114 West 47th Street, New York, New York, 10036-1532, as Successor Trustee under the Original Indenture hereinafter mentioned (the Successor Trustee being hereinafter sometimes called "Trustee"), party of the second part. WHEREAS, the Company has heretofore executed and delivered to Guaranty Trust Company of New York an Indenture dated November 1, 1944 (hereinafter called the "Original Indenture"), to secure the principal of and the interest and premium (if any) on all bonds at any time issued and outstanding thereunder, to declare the terms and conditions upon which bonds are to be issued thereunder and to subject to the lien thereof certain property therein described; and WHEREAS, United States Trust Company of New York is now acting as Successor Trustee under the Original Indenture and the indentures supplemental thereto; and WHEREAS, the Original Indenture and the Supplemental Indentures have been recorded in the proper recording offices of the appropriate counties in the State of New Jersey and the Commonwealth of Pennsylvania; and WHEREAS, the Original Indenture, as the same may be amended or supplemented from time to time by indentures supplemental thereto, is hereinafter referred to as "the Indenture"; and WHEREAS, the Original Indenture authorizes the Company and the Trustee to enter into supplemental indentures for the purpose, among others, of (i) conveying, transferring and assigning to the Trustee, and subjecting to the lien thereof, additional properties thereafter acquired by the Company, and (ii) curing an ambiguity or correcting or supplementing any provision contained in the Original Indenture; and WHEREAS, the Company desires to subject specifically to the lien of the Indenture certain property acquired by the Company and more particularly described in Schedule A; and WHEREAS, the provisions of Article XVII, Section 17.01(f) of the Original Indenture provide that indentures supplemental to the Original Indenture may be executed and delivered for any purpose not inconsistent with the terms of the Original Indenture or to cure any ambiguity or to correct or supplement any provision contained in the Original Indenture or in any supplemental indenture which may be defective or inconsistent with any other provision contained in the Original Indenture or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under the Original Indenture which shall not be inconsistent with the provisions of the Original Indenture and which shall not adversely affect the interests of the holders of the bonds; and - 3 - WHEREAS, the Company desires to cure an ambiguity in Article I, Section 1.05(B)(2) of the Original Indenture relating to the identification and inclusion of property additions in officers' certificates of bondable value of property additions; and WHEREAS, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Original Indenture and pursuant to appropriate action of its Board of Directors, has fully resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and WHEREAS, the Company represents that all conditions and requirements necessary to make this Supplemental Indenture, in the form and upon the terms hereof, a valid, binding and legal instrument, in accordance with its terms, and for the purposes herein expressed, have been done, performed and fulfilled, and the execution and delivery hereof, in the form and upon the terms hereof, have been in all respects duly authorized. NOW THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: That Metropolitan Edison Company, in consideration of the premises, and the execution and delivery by the Trustee of this Supplemental Indenture and for other good and valuable considerations, receipt of which is hereby acknowledged, has granted, bargained, sold, aliened, enfeoffed, released, conveyed, mortgaged, assigned, transferred, pledged, set over and confirmed, and by these presents does grant, bargain, sell, alien, enfeoff, release, convey, mortgage, assign, transfer, pledge, set over and confirm unto United States Trust Company of New York, as Successor Trustee as aforesaid, and to its - 4 - successors in the trust created by the Original Indenture and to its and their successors and assigns forever, all the following properties of the Company, that is to say: FIRST All property additions, as defined in and by Section 1.03 of the Original Indenture, acquired by the Company on or after July 15, 1995, and prior to August 15, 1996, and now owned by the Company. SECOND Also all property of the character and nature specified in the "Second," "Third," "Fourth," and "Fifth" subdivisions of the granting clauses of the Original Indenture. THIRD All those certain lots, tracts or parcels of real estate and interest more particularly and specifically described in Schedule A attached hereto and hereby made a part hereof. EXPRESSLY EXCEPTING AND EXCLUDING, HOWEVER, from this Supplemental Indenture and from the lien and operation of the Indenture, all property which, prior to the date of this Supplemental Indenture, shall have been released from the lien of, or disposed of by the Company in accordance with the provisions of the Indenture; and all the tracts or parcels of land and premises and all property of every kind and type excepted and excluded from, and not heretofore or hereby expressly subjected to, the lien of the Original Indenture by the terms thereof whether such property was owned by the Company at the date thereof or has been acquired since that date. - 5 - SUBJECT, HOWEVER, except as otherwise expressly provided in this Supplemental Indenture, to the exceptions, reservations and matters recited in the Indenture, to the reservations, exceptions, limitations and restrictions contained in the several deeds, grants, franchises and contracts or other instruments through which the Company acquired or claims title to the aforesaid property; and subject also to existing leases, to liens on easements or rights-of-way for transmission or distribution line purposes, to taxes and assessments not in default, to easements for alleys, streets, highways, rights-of-way and railroads that may run across or encroach upon said lands, to joint pole and similar agreements, to undetermined liens and charges, if any, incidental to the construction and other permissible encumbrances, as defined in the Original Indenture, and subject also to the provisions of Section 13.03 of the Original Indenture. In trust, nevertheless, upon the terms and trusts set forth in the Indenture. AND THIS SUPPLEMENTAL INDENTURE FURTHER WITNESSETH: That the Company, for the considerations aforesaid, hereby covenants and agrees to and with the Trustee and its successors in the trust under the Indenture, as follows: ARTICLE I. CONCERNING THE TRUSTEE. SECTION 1.01. The Trustee hereby accepts the properties hereby mortgaged and conveyed to it upon the trusts hereinbefore - 6 - referred to and agrees to perform the same upon the terms and conditions set forth in the Indenture. SECTION 1.02. The Trustee shall not be responsible in any manner for or with respect to the validity or sufficiency of this Supplemental Indenture, or the due execution hereof by the Company, or for or with respect to the recitals and statements contained herein, all of which recitals and statements are made solely by the Company. ARTICLE II CURING AN AMBIGUITY IN ARTICLE I, SECTION 1.05 OF THE ORIGINAL INDENTURE SECTION 2.01. Pursuant to Article XVII, Section 17.01(f) of the Original Indenture, for the purpose of curing an ambiguity in Article I, Section 1.05 relating to the identification and inclusion of property additions in officers' certificates of bondable value of property additions, Section 1.05(B)(2) of the Original Indenture is hereby revised and restated in its entirety as follows: "(2) a brief identification, including the location, of the property additions then being certified to the Trustee; if any property included in such property additions is located on any leasehold, other than those of the nature described in paragraph (d) of the definition of property additions, stating that such leasehold extends beyond the date of maturity of all bonds then outstanding under this Indenture and all additional bonds applied for at the particular time, and that the amount then and - 7 - theretofore included in property additions on account of leasehold estates or improvements, extensions or additions thereto, other than those of the nature described in paragraph (d) of the definition of property additions, does not in the aggregate exceed five per centum (5%) of the aggregate principal amount of all bonds then outstanding and all bonds which might then be authenticated and delivered hereunder pursuant to the provisions of Sections 4.03, 4.04 and 4.05 hereof; if any property included in such property additions is subject to a prior lien securing prior lien bonds which have not been described in accordance with clause (10) of this paragraph B in a preceding certificate delivered to the Trustee pursuant to this paragraph B, stating (i) the principal amount of prior lien bonds secured by such prior lien and then to become refundable prior lien bonds, and (ii) the aggregate principal amount of prior lien bonds then outstanding which became, at any previous time, refundable prior lien bonds, and (iii) stating that the inclusion of said property in the certificate does not result in a violation of the covenants contained in the first paragraph of Section 5.15 hereof; (i) no annual officers' certificate of bondable value of property additions shall include property additions made, constructed or acquired by the Company during the period prior to the date of the last preceding annual officers' certificate of bondable value of property additions delivered to the Trustee pursuant to this paragraph B, and (ii) each officers' certificate other than an annual officers' certificate of bondable value of property additions may include property - 8 - additions made, constructed or acquired by the Company during the period subsequent to the date of the last preceding annual officers' certificate of bondable value of property additions delivered to the Trustee pursuant to this paragraph B, if such property additions have not been included in a previous certificate, except, in either case, (a) that such certificate may include property additions made, constructed or acquired by the Company prior to said dates if such property additions are subject to a prior lien and have not been included in a previous certificate, and (b) that any property additions acquired by the Company within 15 days preceding, or to be so acquired concurrently with the granting of any application in connection with which such officers' certificate is delivered to the Trustee, may, unless such property additions are to be acquired in exchange or substitution for bondable property, be certified to the Trustee as property additions in such officers' certificate and in such event shall be treated for all purposes of this Indenture has having been acquired on or before the date of such officers' certificate." ARTICLE III. MISCELLANEOUS. SECTION 3.01. For all purposes hereof, except as the context may otherwise require, (a) all terms contained herein shall have the meanings given such terms in, and (b) all references herein to sections of the Original Indenture shall be deemed to be to such sections of, the Original Indenture as the - 9 - same heretofore has been or hereafter may be amended by an indenture or indentures supplemental thereto. SECTION 3.02. As amended and supplemented by the aforesaid indentures supplemental thereto and by this Supplemental Indenture, the Original Indenture is in all respects ratified and confirmed and the Original Indenture and the aforesaid indentures supplemental thereto and this Supplemental Indenture shall be read, taken and construed as one and the same instrument. SECTION 3.03. This Supplemental Indenture shall be simultaneously executed in several counterparts, and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. IN WITNESS WHEREOF, METROPOLITAN EDISON COMPANY, party of the first part, has caused this instrument to be signed in its name and behalf by its President or a Vice President, and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary and United States Trust Company of New York, as Successor Trustee as aforesaid, the party of the second part, in token of its acceptance of the trust hereby created, has caused this instrument to be signed in its name and behalf by an Authorized Officer and its corporate seal to be hereunto affixed and attested by an Authorized Officer, all as of the day and year first above written. - 10 - METROPOLITAN EDISON COMPANY By T. G. Howson Vice President ATTEST: S. L. Guibord Secretary Signed, sealed and delivered by METROPOLITAN EDISON COMPANY in the presence of: UNITED STATES TRUST COMPANY OF NEW YORK As Successor Trustee as aforesaid By Vice President ATTEST: Assistant Vice President Signed, sealed and delivered by UNITED STATES TRUST COMPANY OF NEW YORK in the presence of: - 11 - STATE OF NEW JERSEY : : ss: COUNTY OF MORRIS : On this _____ day of August, 1996, before me, B. E. Jost, a Notary Public for the State and County aforesaid, the undersigned officer, personally appeared T. G. Howson, who acknowledged himself to be a Vice President of Metropolitan Edison Company, a corporation, and that he as such Vice President, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as Vice President. IN WITNESS WHEREOF, I hereunto set my hand and official seal. _________________________________ Notary Public [NOTARIAL SEAL] STATE OF NEW YORK : : ss. COUNTY OF NEW YORK : On this _____day of August, 1996, before me, _______________________, a Notary Public for the State and County aforesaid, the undersigned officer, personally appeared L. P. Young, who acknowledged himself to be a Vice President of United States Trust Company of New York, a corporation, and that he as such Vice President, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as Vice President. IN WITNESS WHEREOF, I hereunto set my hand and official seal. _________________________________ Notary Public [NOTARIAL SEAL] - 12 - CERTIFICATE OF RESIDENCE United States Trust Company of New York, Successor Trustee within named, hereby certifies that its precise residence is 114 West 47th Street, in the Borough of Manhattan, in the City of New York, in the State of New York. UNITED STATES TRUST COMPANY OF NEW YORK By Vice President - 13 - SCHEDULE A COMMONWEALTH OF PENNSYLVANIA MONTGOMERY COUNTY PENNSYLVANIA-NEW JERSEY-MARYLAND INTERCONNECTION CONTROL CENTER: An undivided 3.40% interest of the Company in and to the following described real property: All that certain tract or parcel of ground with the buildings and improvements thereon, situate in the Township of Lower Providence, County of Montgomery, Commonwealth of Pennsylvania bounded and described in accordance with a survey and plan thereof made by George C. Beebe, Registered Professional Engineer, for Robert E. Lamb, Inc., Valley Forge, Pennsylvania, dated May 16, 1968, as follows: Beginning at a point at the intersection of the title line within the bed of Van Buren Avenue and the title line within the bed of Jefferson Avenue and extending thence from said point S. 42 degrees 00' W. 440 feet 0 inches to a point; thence N. 48 degrees 00' W. 440 feet 0 inches to a point; thence N. 42 degrees 00' E 75 feet 0 inches to a point; thence N. 48 degrees 00' W. 30 feet 0 inches to a point; thence N. 42 degrees 00' E. 365 feet 0 inches to a point on the title line within the bed of Van Buren Avenue and thence along the title line within the bed of Van Buren Avenue, S. 48 degrees 00' E. 470 feet 0 inches to the first mentioned point and place of beginning. Containing 4.696 acres, more or less. Subject to easements, rights, covenants, conditions and restrictions of record, if any, or otherwise visible. Being the same undivided 3.40% interest in the above described premises which was conveyed to the Company by PECO Energy Company, a Pennsylvania corporation, as Agent for members of the Pennsylvania-New Jersey-Maryland Interconnection, by deed dated July 13, 1995 and recorded in the Montgomery County Commissioners Registry on October 26, 1995 in Deed Book 5129, Page 1538 &c. Montgomery County Tax Parcel No. 43-00-15406-00-4. PORTLAND STATION ASH DISPOSAL SITE ALL THAT CERTAIN tract of land situate in the Borough of Bangor, County of Northampton and Commonwealth of Pennsylvania, being the same premises granted and conveyed unto Metropolitan Edison Company by John W. Wallace and Shirley Wallace, his wife, by Deed dated July 14, 1995, and recorded July 19, 1995 in Vol. 1995-1, Page 063646, Northampton County Records. PORTLAND STATION ASH DISPOSAL SITE ALL THAT CERTAIN tract of land situate partly in the Borough of Bangor and Township of Washington, County of Northampton and Commonwealth of Pennsylvania, being the same premises granted and conveyed unto Metropolitan Edison Company by Myrtle M. Linaberry, widow, and Executrix of the Last Will and Testament of John P. Linaberry, a/k/a John F. Linaberry, deceased, by Deed dated July 14, 1995, and recorded July 19, 1995 in Vol. 1995-1, Page 063652, Northampton County Records. EX-4.C12 6 EXHIBIT 4C12 Exhibit 4-C-12 _________________________________________________________ _________________________________________________________ PENNSYLVANIA ELECTRIC COMPANY AND UNITED STATES TRUST COMPANY OF NEW YORK, Trustee __________ SUPPLEMENTAL INDENTURE __________ Dated as of August 15, 1996 _________________________________________________________ _________________________________________________________ SUPPLEMENTAL INDENTURE, dated as of August 15, 1996, made and entered into by and between PENNSYLVANIA ELECTRIC COMPANY, a corporation of the Commonwealth of Pennsylvania (hereinafter sometimes called the "Company"), party of the first part, and UNITED STATES TRUST COMPANY OF NEW YORK, a corporation of the State of New York (hereinafter sometimes called the "Trustee"), as successor Trustee under the Mortgage and Deed of Trust hereinafter referred to, party of the second part. WHEREAS, the Company heretofore executed and delivered its Indenture of Mortgage and Deed of Trust (hereinafter called the "Original Indenture"), dated as of the first day of January, 1942, to Bankers Trust Company to secure the First Mortgage Bonds of the Company, unlimited in aggregate principal amount and issuable in series, from time to time, in the manner and subject to the conditions set forth in the Mortgage (as hereinafter defined) and by said Original Indenture granted and conveyed unto the Trustee, upon the trusts, uses and purposes specifically therein set forth, certain real estate, franchises and other property therein described, including property acquired after the date thereof, except as therein otherwise provided; and WHEREAS, indentures supplemental to and amendatory of the Original Indenture have been executed and delivered by the Company and the Trustee, namely Supplemental Indentures dated March 7, 1942, April 28, 1943, August 20, 1943, August 30, 1943, August 31, 1943, April 26, 1944, April 19, 1945, October 25, 1945, as of June 1, 1946, as of November 1, 1949, as of October 1, 1951, as of August 1, 1952, as of June 1, 1953, as of March 1, 1954, as of April 30, 1956, as of May 1, 1956, as of March 1, 1958, as of August 1, 1959, as of May 1, 1960, as of May 1, 1961, October 1, 1964, November 1, 1966, as of June 1, 1967, as of August 1, 1968, as of May 1, 1969, as of April 1, 1970, as of December 1, 1971, as of July 1, 1973, as of June 1, 1974, as of December 1, 1974, as of August 1, 1975, as of December 1, 1975, as of April 1, 1976, as of July 1, 1976, as of November 1, 1976, as of November 30, 1977, as of December 1, 1977, as of June 1, 1978, as of June 1, 1979, as of September 1, 1984, as of December 1, 1985, as of December 1, 1986, as of May 1, 1989, as of December 1, 1990, as of March 1, 1992, as of June 1, 1993 and as of November 1, 1995, respectively; and the Original Indenture as supplemented and amended by said Supplemental Indentures and by this Supplemental Indenture is hereinafter referred to as the Mortgage; and WHEREAS, the Original Indenture, certain of said Supplemental Indentures, an Instrument of Resignation, Appointment and Acceptance dated as of October 27, 1995 among the Company, Bankers Trust Company and United States Trust Company of New York have been duly recorded in mortgage books in the respective Offices of the Recorders of Deeds in and for the Counties of Pennsylvania in which this Supplemental Indenture is to be recorded, and in the mortgage records of Garrett County, Maryland; and WHEREAS, provision is made in Section 17.01(e) of the Original Indenture for the execution by the Company and the Trustee, without the consent of the holders of the bonds at the time outstanding, of an indenture or indentures supplemental to the Original Indenture for the purpose of curing any ambiguity or correcting or supplementing any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or making such other provisions in regard to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture and which shall not adversely affect the interest of the holders of the bonds; and WHEREAS, the Company desires to cure an ambiguity in Section 1.05(B)(2) of the Original Indenture relating to the identification and inclusion of property additions in officers' certificates of bondable value of property additions; and WHEREAS, the execution and delivery of this Supplemental Indenture have been duly authorized by the Board of Directors of the Company at a meeting duly called and held according to law, and all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument in accordance with its terms, for the purposes herein expressed, and the execution and delivery hereof, in the form and terms hereof, have been in all respects duly authorized; NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: That in consideration of the premises, and of the sum of One Dollar ($1.00), lawful money of the United States of America, to the Company duly paid by the Trustee at or before the ensealing and delivery hereof, and for other valuable considerations, the receipt whereof is hereby acknowledged, and intending to be legally bound hereby, the Company hereby covenants and agrees to and with the Trustee and its successors in the trusts under the Mortgage, as follows: ARTICLE I. Amendment of Original Indenture Section 1.01. The references in this Article I to Articles, Sections or parts thereof and to page numbers are to Articles, Sections or part thereof and page numbers of the Original Indenture. Section 1.02. Pursuant to Section 17.01(f) of the Original Indenture, for the purpose of curing an ambiguity in Article I, Section 1.05 relating to the identification and inclusion of property additions in officers' certificates of bondable value of property additions, Section 1.05(B)(2) of the Original Indenture is hereby revised and restated in its entirety as follows: 2 "(2) a brief identification of the property additions then being certified to the Trustee (and, if any property included in such property additions is located on any leasehold, stating that the property located on such leasehold constitutes movable physical property used or useful in connection with bondable property), provided, however that (i) no annual officers' certificate of bondable value of property additions shall include property additions made, constructed or acquired by the Company during the period prior to the date of the last preceding annual officers' certificate of bondable value of property additions delivered to the Trustee pursuant to this paragraph B, and (ii) each officers' certificate other than an annual officers' certificate of bondable value of property additions may include property additions made, constructed or acquired by the Company during the period subsequent to the date of the last preceding annual officers' certificate of bondable value of property additions delivered to the Trustee pursuant to this paragraph B, if such property additions have not been included in a previous certificate; and further provided, however, that any property additions to be acquired by the Company concurrently with the granting of any application in connection with which such officers' certificate is delivered to the Trustee, may, unless such property additions are to be acquired in exchange or substitution for bondable property, be certified to the Trustee as property additions in such officers' certificate and in such event shall be treated for all purposes of this Indenture as having been acquired on or before the date of such officers' certificate." ARTICLE II Miscellaneous Section 2.01. The Trustee hereby accepts the modifications of the Original Indenture provided for herein, and agrees that the same shall have the same effect provided for in the Mortgage. The recitals contained herein shall be taken as the statements of the Company alone, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Supplemental Indenture. Section 2.02. As amended and supplemented by the aforesaid indentures supplemental thereto and by this Supplemental Indenture, the Original Indenture is in all respects ratified and confirmed and the Original Indenture and the aforesaid indentures supplemental thereto and this Supplemental Indenture shall be read, taken and construed as one and the same instrument. 3 Section 2.03. This Supplemental Indenture shall be simultaneously executed in several counterparts, and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. IN WITNESS WHEREOF, PENNSYLVANIA ELECTRIC COMPANY, party of the first part, has caused this instrument to be signed in its name and behalf by its President or a Vice President, and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary, and UNITED STATES TRUST COMPANY OF NEW YORK, party of the second part, has caused this instrument to be signed in its name and behalf by a Senior Vice President or a Vice President and its corporate seal to be hereunto affixed and attested by a Vice President or an Assistant Vice President, all as of the day and year first above written. ATTEST: PENNSYLVANIA ELECTRIC COMPANY ____________________________ By________________________________ S. L. Guibord T. G. Howson Secretary Vice President [CORPORATE SEAL] ATTEST: UNITED STATES TRUST COMPANY OF NEW YORK ____________________________ By________________________________ Assistant Vice President Vice President [CORPORATE SEAL] 4 STATE OF NEW JERSEY : : ss: COUNTY OF MORRIS : On this _____ day of August, 1996, before me, B. E. Jost, a Notary Public for the State and County aforesaid, the undersigned officer, personally appeared T. G. Howson, who acknowledged himself to be a Vice President of Pennsylvania Electric Company, a corporation, and that he as such Vice President, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as Vice President. IN WITNESS WHEREOF, I hereunto set my hand and official seal. _________________________________ Notary Public [NOTARIAL SEAL] STATE OF NEW YORK : : ss. COUNTY OF NEW YORK : On this _____day of August, 1996, before me, _____________________, a Notary Public for the State and County aforesaid, the undersigned officer, personally appeared L. P. Young, who acknowledged himself to be a Vice President of United States Trust Company of New York, a corporation, and that he as such Vice President, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as Vice President. IN WITNESS WHEREOF, I hereunto set my hand and official seal. _________________________________ Notary Public [NOTARIAL SEAL] 5 CERTIFICATE OF RESIDENCE United States Trust Company of New York, Mortgagee and Trustee within named, hereby certifies that its precise residence is 114 West 47th Street, in the borough of Manhattan, in The City of New York, in the State of New York. UNITED STATES TRUST COMPANY OF NEW YORK By________________________________ Name Vice President 6 EX-10.A 7 EXHIBIT 10A Exhibit 10-A GPU SYSTEM COMPANIES DEFERRED COMPENSATION PLAN (as amended through August 1, 1996) TABLE OF CONTENTS Purpose 1 Definition of Terms 1 Administration 7 Deferral Election 8 Supplemental Savings Plan Benefits 11 Interest 12 Distribution of Deferred Funds 13 Non-Assignment of Deferred Compensation 17 Termination of Participation or Employment 17 Transfer of Employment 18 1. Purpose This document sets forth the GPU System Companies Deferred Compensation Plan, as amended and restated, effective August 1, 1996. The Plan provides Elected Officers of each Company, as defined herein, with an opportunity to defer part or all of their Compensation, pursuant to their elections made in accordance with the provisions hereof. The Plan also provides Elected Officers and Other Eligible Employees with an opportunity to be credited with additional deferred amounts that are intended to approximate the Company Matching Contributions that otherwise might have been made on their behalf to the GPU, Inc. and Subsidiary System Companies Employee Savings Plan for Nonbargaining Employees (the "Savings Plan") but for the limitation on the amount of compensation that can be taken into account under the Savings Plan pursuant to section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Compensation Limit"). The Plan is intended to constitute an unfunded plan of deferred compensation for "a select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Each Company has adopted this Plan as its own Plan. Accordingly, each Company shall be obligated hereunder only with respect to amounts distributable from the Accounts it maintains for Participants who are its own employees; and the right to receive any amount distributable hereunder with respect to any Participant shall be enforceable only against the Company with which such Participant is or was last employed. 2. Definition of Terms 2.1 Account - refers, as the context may require, to the Retirement Account, or the Pre-Retirement Account or Accounts, or to the Retirement Account and all Pre- Retirement Accounts, established for a Participant hereunder. 2.2 Board - refers to the Board of Directors of a Company. 2.3 Chairman - refers to the Chairman of the Board or the Chairman, as appropriate for each Company that has adopted the Plan. 2.4 Change in Control - A "Change in Control" shall mean the occurrence during the term of the Plan of: 1 (1) An acquisition (other than directly from GPU, Inc. (the "Corporation") of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the board of directors of the Corporation (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the board of directors of the Corporation; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Corporation (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: 2 (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the 3 acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 2.5 Committee - refers to the Personnel, Compensation and Nominating Committee of the Board of Directors of GPU, Inc. 2.6 Company - refers, as the context may require, singularly and not jointly, to any Company, a majority of the outstanding common stock of which is owned, directly or indirectly, by GPU, Inc., that has adopted the Plan. When used in reference to a Participant, the term "Company" shall mean the Company with which such Participant is or was last employed unless the context otherwise requires. 2.7 Compensation - refers to all amounts which, but for an election hereunder, would be paid in cash during a Plan Year to a Participant for services performed on behalf of the Company, but does not include reimbursement for travel or other expenses, Company contributions to retirement programs or other employee benefit plans, payments under the Company's Short-Term or Long-Term Disability Income Plans, any amounts distributed to the Elected Officer from any Pre-Retirement Account. A Participant's Compensation for any Plan Year includes any Performance Award that becomes payable to the Participant during such year, but does not include any other amounts that are paid or that become payable to the Participant under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries (the "Stock Plan"). A Participant's Compensation for any Plan Year beginning on or after April 1, 1991, shall not include any severance payments made to the Participant in connection with his or her termination of employment. 2.8 Disability - refers to entitlement to benefits under the Company's Long-Term Disability Income Plan or Employee Pension Plan as a result of a disability which, in the opinion of the Board, is considered to be a permanent disability. 4 2.9 Elected Officer - refers to an individual who, pursuant to election by the Board, is serving as an officer of the Company other than as an Assistant Controller, an Assistant Secretary, or an Assistant Treasurer; provided, however, that the Board of any Company may limit participation in the Plan to such of that Company's elected officers as the Board may designate, and in such case, the term "Elected Officer" shall refer only to any elected officer of such Company so designated by the Board. 2.10 "Excess Compensation" - refers, in the case of any Participant for any month beginning on or after January 1, 1995, to the amount by which (i) the aggregate amount of the Participant's Regular Compensation and Incentive Compensation for such month and for all prior months within the Plan Year of the Savings Plan ("ESP Plan Year" ) that includes such month exceeds the sum of (ii) the Compensation Limit in effect for such ESP Plan Year and (iii) the aggregate amount of the Participant's "Excess Compensation" (as determined under clause (i) and (ii) hereof) for all prior months within such Plan Year. 2.11 Incentive Compensation - refers to the portion of a Participant's Compensation for a Plan Year that consists of amounts awarded to the Participant during such year under the Company's Incentive Compensation Plan for Elected Officers, Employee Incentive Compensation Plan, or Annual Performance Award Plan. 2.12 Other Eligible Employee - refers, with respect to any Plan Year, to any employee of a Company who is not an Elected Officer of such Company but who is expected to have "Excess Compensation" for any one or more months during such Plan Year and who has been designated by the Chairman of such Company as eligible to make a deferral election for such Plan Year under Section 4.3. 2.13 Participant - refers to any Elected Officer or Other Eligible Employee who has made a deferral election for any Plan Year under Section 4.1 or 4.3. For all purposes of the Plan other than for purposes of continuing entitlement to make deferral elections under Section 4.1 or 4.3, an Elected Officer who at any time ceases to be such, or a Participant whose employment is terminated or whose participation in the Plan is terminated pursuant to Section 9, shall, notwithstanding such cessation or termination, continue to be treated as a "Participant" until all amounts credited to his or her Accounts under the Plan have been distributed pursuant to Section 7, or transferred pursuant to Section 10.1. 2.14 Performance Award - refers to the portion of a Participant's Compensation for a Plan Year that consists 5 of any Performance Cash Incentive Award that becomes payable to the Elected Officer during such year under the Stock Plan. For this purpose, a Performance Award shall be treated as becoming payable to a Participant on the "Vesting Date" for the restricted shares or restricted units with respect to which the Performance Award becomes payable; and the "Vesting Date" shall mean the date on which such restricted shares or restricted units become vested under the terms of the written agreement between the Elected Officer and GPU, Inc. evidencing the award of such shares or units to the Elected Officer. 2.15 Plan - refers to the GPU System Companies Deferred Compensation Plan as set forth in this document and as it may be amended in the future. 2.16 Plan Year - refers to each 12-month period from April 1 through March 31. In the case of any Company that adopts the Plan as of a date after the start of a Plan Year, as so defined, the initial "Plan Year," with respect to such Company's Elected Officers and Other Eligible Employees, shall be the period commencing on the date as of which the Plan is so adopted and ending on the next following March 31. 2.17 Pre-Retirement Account - refers to the memorandum account which shall be established and maintained for a Participant who elects, pursuant to Section 4.5, to have payment of any portion of his or her Compensation for any Plan Year deferred to a date which is expected to occur prior to his or her Retirement or Disability. A separate Pre-Retirement Account shall be established and maintained for the Compensation for each Plan Year which the Participant so elects to defer. 2.18 Regular Compensation - refers to a Participant's Compensation for a Plan Year, exclusive of any Incentive Compensation awarded to the Participant during such Plan Year, and exclusive of any Performance Award that becomes payable to the Participant during such Plan Year. 2.19 Retirement - refers to termination of service with the Company on account of retirement under the Company's Employee Pension Plan, resignation, death or any other reason other than employment by any other Company. A Participant will not be deemed to have retired until he or she ceases to be employed with any Company. 2.20 Retirement Account - refers to the memorandum account which shall be established and maintained for a Participant who elects, pursuant to Section 4.5, to have payment of any portion of his or her Compensation for any Plan Year deferred to a date after his or her 6 Retirement or Disability. The term Retirement Account shall also refer to the memorandum account that shall be established and maintained for a Participant pursuant to Section 5.3. 3. Administration 3.1 Subject to the concurrence of the Committee, the Company may modify the provisions of the Plan from time-to-time, or, may terminate the entire Plan at any time; provided, however, that Section 2.4, this Section 3.1, Section 3.4, Paragraph (d) of Section 6 and the last paragraph of Section 7.2 may not be amended or modified, and the Plan may not be terminated, (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, if the amendment, modification or termination adversely affects the rights of any Participant under the Plan. Action to amend the Plan may be taken by the Company either by resolution duly adopted by the Company's Board, or by an instrument in writing executed by an officer of the Company to whom authority to adopt or approve amendments to the Plan has been delegated pursuant to a resolution duly adopted by the Company's Board. No modification or termination of the Plan shall adversely affect the rights of any Participant with respect to any amounts standing to the Participant's credit in any Account immediately prior to the date of the adoption of such modification or termination, including without limitation any rights with respect to the time and method of payment of, or the crediting of interest equivalents with respect to, any such amounts. 3.2 Responsibility for the ongoing administration of this Plan rests with the Board. 3.3 The Board may delegate the day-to-day administration of this Plan, including the maintenance of appropriate records, receiving notifications, making filings, and maintaining related documentation, to the officer or other employee of the Company in charge of the Company's Human Resources division or function, and to his or her staff. 7 3.4 The Board shall have exclusive authority to resolve all questions concerning the Plan, including any dispute over accounting or administrative procedures or interpretation of the Plan. Notwithstanding the foregoing, any determination made by the Board after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential, standard. 3.5 A Participant's election to defer Compensation, selection of a distribution commencement date and distribution option, or designation of a beneficiary and contingent beneficiary, made pursuant to this Plan, shall be made in writing, on a form furnished to the Participant for such purpose by the officer or other employee of the Company in charge of the Company's Human Resources division or function. The form shall be signed by the Participant and delivered personally or by first class mail to: Vice President-Human Resources GPU Service, Inc. 100 lnterpace Parkway Parsippany, New Jersey 07054 Any such election, selection, designation, or any change therein, shall not become effective unless and until received by the Vice President-Human Resources. Except as provided in Section 7.2 or Section 7.4, a change in the selection of a distribution commencement date or distribution option shall not be effective unless made at least twenty-four (24) months prior to the Participant's Retirement or Disability. 4. Deferral Election 4.1 For each Plan Year beginning on and after April 1, 1991, an Elected Officer may elect, separately, to defer (a) any part or all of his or her Regular Compensation for such year, (b) any part or all of his or her Incentive Compensation for such year, and/or (c) any part or all of any Performance Award that becomes payable to the Elected Officer during such year; subject, however, in each case to the limitations set forth in Section 4.4. 8 4.2 An election to defer Regular Compensation for any Plan Year beginning on and after April 1, 1991, shall be made on or prior to October 31 of the year preceding such Plan Year. An election to defer Incentive Compensation for any Plan Year beginning on or after April 1, 1991, shall be made on or prior to October 31 of such Plan Year. Notwithstanding the foregoing, (a) Elected Officers who are initially elected prior to November 1st of any Plan Year may, within 30 days of such initial election, or, if later, the date the Elected Officer's Regular Compensation is fixed by the Board, make a deferral election for his or her Regular Compensation for the then current Plan Year, and (b) Elected Officers who are initially elected after November 1st of any Plan Year may, within 30 days of such initial election, or, if later, the date the Elected Officer's Regular Compensation is fixed by the Board, make a deferral election for both his or her Regular Compensation and Incentive Compensation (if any) for the then current Plan Year, as well as for his or her Regular Compensation for the immediately succeeding Plan Year; provided, however, that any deferral election made pursuant to clause (a) or (b) hereof shall be effective only with respect to Compensation earned after such deferral election has become effective. An election to defer any part of a Performance Award shall be made at least one year prior to the Vesting Date for the restricted shares or restricted units with respect to which such Performance Award is payable. All deferral elections made under Section 4.1 or 4.3 shall be irrevocable. 4.3 For each Plan Year beginning on or after April 1, 1996, any Other Eligible Employee may elect to defer any part or all of any "Excess Compensation" that may become payable to such Other Eligible Employee for any month during such Plan Year, subject to the limitations set forth in Section 4.4. Such election shall be made on or prior to October 31 of the year preceding such Plan Year. 4.4 Deferral elections otherwise permitted to be made under the Plan for Plan Years beginning on or after April 1, 1995 shall be subject to the following limitations: (a) No amount may be deferred pursuant to a Participant's election under this Plan for a period of 12 months following the Participant's receipt of a hardship withdrawal under Section 7.2(e) of the Savings Plan. (b) No Incentive Compensation for a Plan Year may be deferred pursuant to a Participant's election hereunder if the Participant's Retirement or Disability occurs after the date on which he or she 9 made such election but prior to the first day of the calendar year next following the date on which the Participant made the election for such Plan Year. (c) No portion of a Participant's Compensation for a Plan Year may be deferred pursuant to the Participant's election hereunder to the extent such portion is required to be applied to payment of any tax or other obligation of the Participant. 4.5 In any election to defer Regular Compensation or Incentive Compensation for any Plan Year, in any election to defer any Performance Award that becomes payable during a Plan Year, and in any election by any Other Eligible Employee to defer any Excess Compensation for any Plan Year, the Participant shall specify the amount or portion of such Compensation to be deferred, and shall indicate whether the Compensation so deferred is to be credited to a Pre-Retirement Account, or to a Retirement Account. If an Elected Officer elects to defer Incentive Compensation for any Plan Year to a Pre- Retirement Account, the Compensation so deferred shall be credited to the Elected Officer's Pre-Retirement Account for the Plan Year next following the Plan Year in which such Incentive Compensation is awarded to the Elected Officer. 4.6 With respect to Compensation deferred hereunder for a Plan Year which a Participant elects to have credited to his or her Pre-Retirement Account, he or she shall specify in his or her election form the date on which distribution of such account shall be made or commence. The date so selected shall be no earlier than January 15 of the third calendar year beginning after the close of such Plan Year, and may be the January 15 of any subsequent calendar year. Notwithstanding the foregoing, a Participant may elect to have distribution of any Pre-Retirement Account made or commence on the earlier of any date selected by the Participant in accordance with the preceding sentence, or January 15 of the calendar year following the Participant's Retirement or Disability. In his or her election form for the Plan Year, the Participant shall also select an option under Section 7.2 for the distribution of the Pre-Retirement Account. Except as provided in Section 7.2 or Section 7.4, the date so specified, and the option so selected, may not thereafter be changed by the Participant. 4.7 With respect to any Compensation deferred hereunder which a Participant elects to have credited to his or her Retirement Account, he or she shall, at the time he or she first elects to have an amount credited to such account, also elect a distribution commencement date and a distribution option under Section 7.2 for the 10 distribution of such account. A Participant may, subject to the provisions of Section 3.5, change any election as to the distribution commencement date and distribution option for the Retirement Account previously made by him or her. The distribution commencement date so elected shall be either January 15 of the calendar year following the Participant's Retirement or Disability, or January 15 of any subsequent calendar year. 5. Supplemental Savings Plan Benefits 5.1 Beginning on or after April 1, 1992, for each month for which an Elected Officer has Excess Compensation, and beginning on or after April 1, 1996, for each month for which any Other Eligible Employee has Excess Compensation, there shall be credited to such Participant's Retirement Account an amount determined by multiplying the Participant's Excess Compensation for such month by his or her Matching Percentage for such month. 5.2 For purposes of Section 5.1, the following definitions and rules shall apply beginning on or after January 1, 1995: (a) In determining the amount of a Participant's "Excess Compensation" for any month, only the Participant's Regular Compensation for those months during which he or she is eligible to participate in the Savings Plan shall be taken into account. (b) A Participant's Regular Compensation for any month shall include the total amount of Regular Compensation that would have been paid to the Participant in such month but for any deferral election made by the Participant hereunder. A Participant's Incentive Compensation for any month shall include the total amount of Incentive Compensation awarded to the Participant during such month whether or not paid to the Participant in such month. (c) A Participant's "Matching Percentage" for any month shall mean the percentage, not in excess of 4%, determined by dividing the aggregate amount of the Participant's Regular Compensation and Incentive Compensation for such month, and for all prior months within the ESP Plan Year that includes such month, that is deferred pursuant to elections made by the Participant hereunder, by (ii) the aggregate amount of the Participant's Excess Compensation for such month and for all prior months within the ESP Plan Year that includes such month. 11 5.3 If, on the first date as of which an amount is to be credited to a Participant's Retirement Account under Section 5.1, a Retirement Account had not previously been established for such Participant pursuant to Section 4.5, a Retirement Account shall be established for such Participant as of such date. By no later than 30 days after such date, such Participant shall elect a distribution commencement date and a distribution option for his Retirement Account, and may thereafter change any such election, in accordance with the provisions set forth in Section 4.7. 6. Interest Interest equivalents will be calculated and credited to Accounts at the end of each quarter in the calendar year. Such interest equivalents shall be determined in accordance with the following rules: (a) The amount of Regular Compensation deferred each month pursuant to an Elected Officer's election hereunder, the amount of Excess Compensation for any month that is deferred pursuant to any Other Eligible Employee's election hereunder, and any amount credited to a Participant's Retirement Account for any month under Section 5.1, shall be treated as having been credited to the Participant's Account in two equal installments during such month, one at mid-month, and the other at month's end; and interest equivalents thereon shall be compounded monthly on each quarter's beginning balance with proportionate monthly compounding for any amounts so deferred or credited during any calendar quarter. (b) The amount of Incentive Compensation deferred pursuant to an Elected Officer's election hereunder shall be treated as having been credited to the Elected Officer's Account as of the 15th day, or the last day of the month (whichever is earlier), following the date on which such amount would have been paid to the Elected Officer in the absence of such election, and interest equivalents thereon shall be compounded monthly. (c) Any part of a Performance Award deferred pursuant to an Elected Officer's election hereunder shall be treated as having been credited to the Elected Officer's Account as of the 15th day, or the last day of the month (whichever is earlier), following the Vesting Date for the restricted shares or restricted units with respect to which such Performance Award became payable. (d) The rate used in calculation of interest equivalents will be the rate equal to the simple average of Citibank N.A. of New York Prime Rates for the last business day of each of the three months in the calendar quarter or, 12 if greater, such other rate as established from time to time by the Committee. Interest equivalents will be credited to the balance of each Account maintained for a Participant hereunder, including the undistributed balance of any such Account from which payments are being made in installments. However, if a Participant elects Option (c) under Section 7.2 below, no interest equivalents will be credited to the Participant's Account for any period after the date on which distribution under such Option is to commence. 7. Distribution of Deferred Funds 7.1 Subject to Section 7.4, a Participant's Pre-Retirement Accounts shall be distributed to him or her, or distributions from such Pre-Retirement Accounts shall commence, on the date or dates specified in the elections made by the Participant with respect to such accounts. Subject to Section 7.4, a Participant's Retirement Account shall be distributed to him or her, or distributions from such Retirement Account shall commence, on the date specified in the Participant's latest effective election. 7.2 The options for distribution are: (a) A single lump sum payment. (b) Annual installments over any fixed number of years selected by the Participant, with a minimum of five annual installments required for the Retirement Account. (c) With the prior consent of the Committee and subject to such terms and conditions as it may require, a lifetime annuity payable in annual or more frequent installments, the amount of which shall be determined by reference to mortality tables and interest and dividend rates applicable under individual whole life insurance policies being issued at the time of the Committee's approval by such life insurance companies as the Committee may designate. (d) Any other form of distribution, in equal or unequal payments, as specifically approved by the Committee. If distribution of any of a Participant's Accounts is to be made in annual installments under Option (b) of this Section 7.2, the amount of each installment will equal the total amount in said Account on the date the installment is payable, divided by the number of installments remaining to be paid. In addition, if the 13 distributions are made in installments under Option (b) of this Section 7.2, the interest equivalent accrued on each Account each year after the date the first installment is payable will be distributed on each anniversary of such date. Notwithstanding any other provision of the Plan to the contrary or any other optional form of distribution otherwise elected, each Participant shall be permitted to make a special distribution election to have the entire balance of each of his or her Accounts distributed in the form of a single lump sum payment in the event of the Participant's termination of employment (1) by the Company (A) within six (6) months prior to a Change in Control or (B) prior to a Change in Control but which the Participant reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (2) for any reason within the two (2) year period following a Change in Control; provided, however, that such election shall be effective only if it is made either (x) at least twenty-four (24) months prior to such termination of Participant's employment, or (y) if such termination of employment constitutes an "Involuntary Termination" as defined below, at least one year prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made at any time; provided, however, that any such revocation or new election shall be effective only if it is made within the election period specified in clause (x) or (y) of the preceding sentence. Any special election, or revocation of a special election, that may be made hereunder shall be made in the manner set forth in Section 3.5 For purposes of this Section 7.2, an "Involuntary Termination" shall mean the termination of a Participant's employment (A) as a result of the Participant's death, (B) by the Company, for any reason, or (C) by the Participant for "Good Reason" as defined below. For purposes of this Section 7.2, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (A) a change in the Participant's status, title, position or responsibilities (including reporting responsibilities) which, in the Participant's reasonable judgment, represents an adverse change from his or her status, title, position or responsibilities as in effect immediately prior 14 thereto; the assignment to the Participant of any duties or responsibilities which, in the Participant's reasonable judgment, are inconsistent with his or her status, title, position or responsibilities; or any removal of the Participant from or failure to reappoint or reelect him or her to any of such offices or positions, other than in connection with the termination of his or her employment for disability, for cause, or by the Participant other than for Good Reason; (B) a reduction in the Participant's annual base salary below the rate of the Participant's annual base salary in effect as of the date of the Change in Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Participant; (C) the relocation of the offices of the Company at which the Participant is principally employed to a location more than twenty-five (25) miles from the location of such offices immediately prior to the Change in Control, or the Company's requiring the Participant to be based anywhere other than such offices, except to the extent the Participant was not previously assigned to a principal location and except for required travel on the Company's business to an extent substantially consistent with the Participant's business travel obligations at the time of the Change in Control; (D) the failure by the Company to pay to the Participant any amount of the Participant's current compensation, or any amount payable under this Plan, within seven (7) days of the date on which payment of such amount is due; or (E) the failure by the Company to (1) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which the Participant was participating immediately prior to the Change in Control unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Participant or (2) provide the Participant with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under all other compensation or employee benefit plans, programs and practices in which the Participant was participating immediately prior to the Change in Control. 15 Any event or condition described in subparagraph (A) through (E) above which occurs (1) within six (6) months prior to a Change in Control or (2) prior to a Change in Control but which (x) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control, or (y) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, shall constitute Good Reason for purposes of this Section 7.2 notwithstanding that it occurred prior to a Change in Control. 7.3 Except as the Board may otherwise determine based on the circumstances at the time the distribution to the beneficiary is to commence: (a) If a Participant should die after distribution of any Account maintained for him or her hereunder has commenced, but before the entire balance of such Account has been fully distributed, distributions will continue to be made from such Account to the Participant's designated beneficiary or contingent beneficiary, in accordance with the distribution option in effect for such Account at the time of the Participant's death. (b) If a Participant should die before any distribution from an Account maintained for him or her hereunder has been made to him or her, distribution of such Account to the Participant's designated beneficiary or contingent beneficiary shall be made, or shall commence, as soon as practicable after the Participant's death, in accordance with the distribution option in effect for such Account at the time of the Participant's death. Any amounts remaining to be paid to a Participant's designated beneficiary at the time of the designated beneficiary's death shall be paid to the Participant's contingent beneficiary or, if such contingent beneficiary has predeceased the Participant's designated beneficiary, to the estate of the designated beneficiary. Any amounts remaining to be paid to a Participant's contingent beneficiary at the time of such contingent beneficiary's death shall be paid to the estate of the contingent beneficiary. If the Participant's designated beneficiary and contingent beneficiary have both predeceased the Participant, any amounts remaining to be paid to the Participant at the time of his or her death shall be paid to the Participant's estate. 16 7.4 Notwithstanding anything herein to the contrary, any Account maintained for a Participant hereunder may be distributed, in whole or in part, to such Participant on any date earlier than the date on which distribution from such Account is to be made or commence pursuant to the Participant's election with respect to such Account, if (a) the Participant requests such early distribution, and (b) the Board, in its sole discretion, determines that such early distribution is necessary to help the Participant meet some severe financial need arising from circumstances which were beyond the Participant's control and which were not foreseen by him or her at the time he or she made his or her election as to the date or dates for distribution from such Account. A request by a Participant for an early distribution shall be made in writing, shall set forth sufficient information as to the Participant's need for such distribution to enable the Board to take action on his or her request, and shall be mailed or delivered to the Company's Corporate Secretary. 7.5 The Company may, but shall not be required to, purchase a life insurance policy, or policies, to assist in funding any of its payment obligations under the Plan. If any policy is so purchased, it shall, at all times, remain the exclusive property of the Company and subject to the claims of its creditors. Neither the Participant nor any beneficiary or contingent beneficiary designated by him or her shall have any interest in, or rights with respect to, such policy. 7.6 A Participant shall have the status of a mere unsecured creditor of the Company with respect to his or her right to receive any payment under the Plan. The Plan shall constitute a mere promise by the Company to make payments in the future of the benefits provided for herein. It is intended that the arrangements reflected in this Plan be treated as unfunded for tax purposes and for purposes of Title I of ERISA. 8. Non-Assignment of Deferred Compensation A Participant's rights to payments under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer (other than transfer by will or by the laws of descent and distribution, in the absence of a beneficiary designation), assignment, pledge, encumbrance, attachment or garnishment by creditors of the Participant or his or her spouse or other beneficiary. 9. Termination of Participation or Employment A Participant's participation in the Plan may be terminated by the Board at any time. No promise or representation, either express or implied, is made with respect to continued 17 employment, transfer or promotion because of participation in the Plan, and the employment of a Participant may be terminated at any time. 10. Transfer of Employment 10.1 If a Participant transfers employment to any other Company that maintains this Plan for such Company's Elected Officers and Other Eligible Employees and the Participant is or becomes an Elected Officer or Other Eligible Employee of such other Company, the balance to the Participant's credit in each Account maintained for the Participant under this Plan shall be transferred to the comparable account established for the Participant under the Plan maintained by such other Company, effective as of the date on which the Participant's employment is so transferred or, if later, the date on which the Participant first becomes an Elected Officer or Other Eligible Employee of such other Company. Upon the transfer of the Participant's Account balances, the Company making the transfer shall have no further obligation to the Participant or his or her designated beneficiaries with respect to payment of the Account balances so transferred. 10.2 If an Elected Officer or Other Eligible Employee of any other Company that maintains this Plan for its Elected Officers or Other Eligible Employee transfers employment to the Company and is or becomes an Elected Officer or Other Eligible Employee of the Company, as of the date on which such Elected Officer's or Other Eligible Employee's employment is so transferred or, if later, the date on which such Elected Officer or Other Eligible Employee first becomes an Elected Officer or Other Eligible Employee of the Company, there shall be established for the Elected Officer or Other Eligible Employee under this Plan an Account or Accounts comparable to each account maintained for such Elected Officer or Other Eligible Employee under such other Company's Plan, and there shall be transferred to each Account so established an amount equal to the balance to such Elected Officer's or Other Eligible Employee's credit in the comparable account maintained for the Elected Officer or Other Eligible Employee under such other Company's Plan. In addition, on and after the date on which an Elected Officer's or Other Eligible Employee's Account balances are so transferred, any election to defer Compensation, any election as to the date of commencement or form of distribution of Account balances, and any designation of a beneficiary, made by the Participant under such other Company's Plan shall be treated as having been made under this Plan. 18 EX-10.B 8 EXHIBIT 10B Exhibit 10-B GPU SYSTEM COMPANIES MASTER DIRECTORS' BENEFITS PROTECTION TRUST As Amended and Restated Effective November 7, 1996 TABLE OF CONTENTS Article Title Page No. ARTICLE 1 Definitions 2 ARTICLE 2 Establishment of the Trusts 7 ARTICLE 3 Contributions and Accounts 9 ARTICLE 4 Payments to Participants and Beneficiaries 16 ARTICLE 5 Legal Defense Fund 25 ARTICLE 6 Insolvency 29 ARTICLE 7 Payments to Company 31 ARTICLE 8 Investment Authority and Disposition of Income 32 ARTICLE 9 General Powers and Duties of Trustee 34 ARTICLE 10 Taxes, Expenses, and Compensation of Trustee 40 ARTICLE 11 Accounting by Trustee 41 ARTICLE 12 Communications 43 ARTICLE 13 Resignation or Removal of Trustee 45 ARTICLE 14 Amendments and Termination 47 ARTICLE 15 Miscellaneous 48 THIS TRUST AGREEMENT, Amended and Restated as of November 7, 1996, by and between GPU, INC., a Pennsylvania corporation (the "Corporation"), JERSEY CENTRAL POWER & LIGHT COMPANY, a New Jersey corporation, and GPU NUCLEAR, INC., a New Jersey corporation (each such corporation is hereinafter referred to individually as a "Company", and all such corporations are hereinafter referred to collectively as the "Companies"), and SUMMIT BANK (formerly UNITED JERSEY BANK), a New Jersey state chartered bank (hereinafter referred to as the "Trustee"). W I T N E S S E T H : WHEREAS, each Company has adopted one or more Plans (as hereinafter defined) under which it has incurred or expects to incur liability under the terms of such Plans with respect to Benefits (as hereinafter defined) payable to individuals participating in such Plans; and WHEREAS, pursuant to a Trust Agreement dated as of September 1, 1995 between the Companies and the Trustee (the "Prior Agreement"), each of the Companies has established a trust (hereinafter called the "Trust") and has contributed to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency (as hereinafter defined) until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plans; and WHEREAS, it is the intention of the parties that each Trust shall constitute an unfunded arrangement and shall not affect the status of each of the Plans as unfunded for federal income tax purposes; and WHEREAS, it is the intention of each Company to make contributions to its Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under its Plans; and WHEREAS, the Trustee is not a party to any of the Plans and makes no representations with respect thereto; and WHEREAS, the parties hereto wish to amend and restate the Prior Agreement to make certain changes thereto; and NOW, THEREFORE, the Prior Agreement is hereby amended and restated to read in its entirety as follows: ARTICLE 1 Definitions 1.1 As used herein, the following terms shall have the following meanings, unless the context clearly indicates a contrary meaning: (a) "Agreement" shall mean this instrument, as the same may be amended from time to time as permitted herein. (b) "Applicable Company" shall mean, with respect to any Trust established hereunder, or any Plan, the Company that established such Trust, or that has adopted or maintains such Plan. (c) "Beneficiary", with respect to a Participant, shall mean the person or entity designated by such Participant under a Plan, or such other person or entity with respect to such Participant as may be designated under the terms of such Plan, to receive the Benefits, if any, payable from such Plan following such Participant's death. (d) "Benefits" shall mean those amounts specified in Exhibit B that are payable under a Plan to (or with respect to) a Participant, or, upon his death, to his Beneficiary. (e) "Benefit Valuation Date" shall mean the first day of each calendar year. (f) "Board" shall mean the board of directors of the Corporation. 2 (g) "Change in Control" shall mean the occurrence of any of the following: (1) An acquisition (other than directly from the Corporation) of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non- Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Trust, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a 3 merger, consolidation or reorganization of the Corporation where: (i) the stockholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock; (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for 4 the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (h) "Code" shall mean the Internal Revenue Code of 1986 as the same may be amended from time to time. (i) "Insolvent"--A Company shall be considered "Insolvent" for purposes of this Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (j) "Participant" shall mean any person who is or may become entitled to receive Benefits under a Plan and who is included in the list of persons who are to be treated as Participants for purposes of this Agreement, as set forth in Exhibit A hereto. (k) "Permitted Investments" shall mean direct obligations of the United States of America or agencies or instrumentalities thereof or obligations unconditionally and fully guaranteed as to principal and interest by the United States of America ("Obligations"), and certificates of deposit and bankers' acceptances of a bank organized and existing under the laws of the United States of America or any State thereof that has a combined capital and surplus of at least $100,000,000, all having respective maturities of not more than one year when purchased. The term "Permitted Investments" shall also mean any fund or portfolio maintained by any open-end investment company registered under the Investment Company Act of 1940, the assets of which are invested exclusively in Obligations, certificates of deposit and/or bankers' acceptances of the kind described in the preceding sentence including, without limitation, any such fund or portfolio for which the Trustee or any affiliate of the Trustee serves as investment adviser. (l) "Plan" or "Plans" shall mean, with respect to any Company, any (or if the context requires, all) of the plans, programs or policies maintained by such Company, and agreements entered into by such Company, that are included in the list set forth in Exhibit B hereto. (m) "Present Value" shall mean, with respect to any Benefit, the single sum actuarial present value of such Benefit, as determined by an enrolled actuary on the basis of the actuarial assumptions most recently adopted by the 5 Applicable Company for use in connection with this Agreement. Notwithstanding the foregoing, any determination of the Present Value of Benefits to be made hereunder at any time after a Change in Control or during a Threatened Change in Control Period shall be made on the basis of the actuarial assumptions that were used in determining the Present Value of such Benefits as of the most recent Benefit Valuation Date preceding the Change in Control or Threatened Change in Control Period, unless the Applicable Company has notified the Trustee in writing prior to the Change in Control or the Threatened Change in Control Period of its adoption of different actuarial assumptions for use hereunder after the Change in Control or during the Threatened Change in Control Period; provided, however, that if any Plan specifies (either expressly or by reference) the actuarial assumptions that are to be used to calculate the Benefits provided under such Plan, the actuarial assumptions so specified shall be used to determine the Present Value of Benefits under that Plan for purposes of this Agreement. (n) "Threatened Change in Control" shall mean the occurrence of any of the following events (but no event other than the following events), except as otherwise provided below: Any Person (1) becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation representing fifteen percent (15%) or more of the then-outstanding Common Stock or of the combined voting power of the Corporation's then-outstanding voting securities, or (2) initiates a tender offer or exchange offer to acquire securities of the Corporation representing twenty percent (20%) or more of the then-outstanding Common Stock or of the combined voting power of the Corporation's then- outstanding voting securities, or (3) solicits proxies for the election within any single twelve (12)-month period of three or more directors, whose election or nomination is not approved by a majority of the Incumbent Board then serving as members of the Board, to serve on the Board. Notwithstanding the foregoing, a Threatened Change in Control shall not be deemed to occur pursuant to this Section 1.1(n) solely because of an acquisition or tender offer made or effected in connection with a Non-Control Acquisition. (o) "Threatened Change in Control Period" shall mean the period commencing on the date on which a Threatened Change in Control has occurred and ending (i) on the date on which a Change in Control has occurred, or (ii), if earlier, on whichever of the following dates is applicable: 6 (1) in the case of a Threatened Change in Control described in Section 1.1(n)(1), the date as of which any Person described in Section 1.l(n)(1) ceases to be the Beneficial Owner, directly or indirectly, of securities of the Corporation representing fifteen percent (15%) or more of the Common Stock or of the combined voting power of the Corporation's then-outstanding voting securities, or (2) in the case of a Threatened Change in Control described in Section 1.l(n)(2), the date as of which the tender offer or exchange offer described in Section 1.1(n)(2) is terminated without any securities described therein of the Corporation being purchased thereunder, or (3) in the case of a Threatened Change in Control described in Section 1.l(n)(3), the date as of which any Person described in Section 1.1(n)(3) fails to effect the election within any single twelve (12)-month period of three or more directors, whose election or nomination is not approved by a majority of the Incumbent Board then serving as members of the Board, to serve on the Board. (p) "Valuation Date" shall mean the last business day of each calendar quarter. ARTICLE 2 Establishment of the Trusts 2.1 Each Company hereby establishes with the Trustee, and the Trustee hereby accepts, a Trust consisting of such sums of money and other property acceptable to the Trustee as such Company shall pay or deliver to the Trustee from time to time. All such money and other property, all investments and reinvestments made therewith or proceeds thereof and all earnings and profits thereon, less all payments therefrom and charges thereto as authorized herein, are hereinafter referred to as the "Trust Fund" for such Trust. Each Trust Fund shall be held, administered and disposed of by the Trustee as provided in this Agreement. 7 2.2 Prior to a Change in Control, each Trust established hereunder may be revoked, in whole or in part, by the Applicable Company giving to the Trustee written notice of such revocation; provided, however, that no Trust established hereunder may be revoked (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs or (iii) during a Threatened Change in Control Period, any such attempted revocation being null and void. If a Trust is so revoked in its entirety, all of the assets of the Trust (after payment of any unpaid fees and expenses of the Trustee properly chargeable to such Trust) shall be transferred by the Trustee to the Applicable Company or to such other person or entity as the Applicable Company may direct in writing. If a Trust is so revoked in part, the Trustee shall transfer to the Applicable Company such of the assets of the Trust as the Applicable Company shall have specified in its written notice to the Trustee of the partial revocation of such Trust. Upon a Change in Control, each Trust shall become irrevocable. 2.3 Each Trust established hereunder is intended to constitute a "grantor trust", of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, and shall be construed accordingly. 8 2.4 The principal of each Trust, and any earnings thereon, shall be held separate and apart from other funds of the Applicable Company, and shall be used exclusively for the uses and purposes of Participants under such Company's Plans and general creditors of such Company, as herein set forth. Participants and their Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of any Trust. Any rights created under the Plans and this Agreement shall be mere unsecured contractual rights of Participants and their Beneficiaries against the Applicable Company. Any assets held by each Trust will be subject to the claims of the Applicable Company's general creditors under federal and state law in the event of the Applicable Company's Insolvency, as defined in Section 1.1(h) herein. 2.5 Each Trust established hereunder shall be maintained by the Trustee as a separate trust. However, the assets of any Trust may be commingled with the assets of any other Trust, solely for investment purposes. ARTICLE 3 Contributions and Accounts 3.1 Prior to a Change in Control, each Company may make contributions to its Trust in such amounts, and at such times, as such Company may determine in its sole discretion. Such contributions may be in the form of cash, or such other property as may be determined by the Company and as may be acceptable to the Trustee. 9 3.2 Required Contributions. 3.2.1 Upon the occurrence of a Change in Control, each Company shall be required to make contributions to its Trust as follows: (a) Upon a Change in Control, the Company shall, as soon as possible but in no event later than 30 days following the Change in Control, make an irrevocable contribution to its Trust in an amount that, when added to the value of the Trust Fund for such Trust (exclusive of the value of the Legal Defense Fund, if any, maintained within such Trust Fund) determined as of the most recent Valuation Date preceding such contribution, will equal the sum of (i) the aggregate Present Value of all Benefits accrued for all Participants under all of such Company's Plans determined as of the most recent Benefit Valuation Date preceding the date on which the Change in Control occurred; and (ii) the aggregate Present Value of all other Benefits for all Participants under all of such Company's Plans that accrue as a result of the occurrence of the Change in Control, determined as of the first day of the month coincident with or immediately following the date on which the Change in Control occurred. (b) Within 60 days after each Benefit Valuation Date following the occurrence of a Change in Control, each Company shall make an irrevocable contribution to its Trust in an amount that, when added to the value of the Trust Fund for such Trust (exclusive of the value of the Legal Defense Fund, if any, maintained within such Trust Fund) determined as of the most 10 recent Valuation Date preceding such contribution, will equal the aggregate Present Value of all Benefits accrued for all Participants under all of such Company's Plans determined as of such Benefit Valuation Date. 3.2.2 Upon the occurrence of a Threatened Change in Control, each Company shall be required to make contributions to its Trust as follows: (a) Upon a Threatened Change in Control, the Company shall, as soon as practicable but in no event later than 30 days following the Threatened Change in Control, make a contribution to its Trust in an amount that, when added to the value of the Trust Fund for such Trust (exclusive of the value of the Legal Defense Fund, if any, maintained within such Trust Fund) determined as of the most recent Valuation Date preceding such contribution, will equal the sum of (i) the aggregate Present Value of all Benefits accrued for all Participants under all of such Company's Plans, determined as of the most recent Benefit Valuation Date preceding the date on which the Threatened Change in Control occurred; and (ii) the aggregate Present Value, determined as of the first day of the month coincident with or immediately following the date on which the Threatened Change in Control occurred, of all other Benefits for all Participants under all of such Company's Plans that would have accrued as a result of a Change in Control if such Change in Control had occurred on the date on which the Threatened Change in Control occurs. 11 (b) Within 60 days after each Benefit Valuation Date during a Threatened Change in Control Period, each Company shall make a contribution to its Trust in an amount that, when added to the value of the Trust Fund for such Trust (exclusive of the value of the Legal Defense Fund, if any, maintained within such Trust Fund) determined as of the most recent Valuation Date preceding such contribution, will equal the sum of (i) the aggregate Present Value of all Benefits accrued for all Participants under all of such Company's Plans, determined as of such Benefit Valuation Date and (ii) the aggregate Present Value, determined as of such Benefit Valuation Date, of all other Benefits for all Participants under all of such Company's Plans that would have accrued as a result of a Change in Control, if such Change in Control had occurred on such Benefit Valuation Date. 3.3 Within the Trust Fund for each Trust, the Trustee shall establish and maintain a separate account (hereinafter referred to as a "Plan Account") for each of the Applicable Company's Plans. The Trustee also shall establish within each Plan Account a separate sub-account (hereinafter referred to as a "Participant Account") for each Participant of such Plan. The Trustee shall hold all Plan Accounts and Participant Accounts maintained within the Trust Fund for any Trust as a single consolidated fund. 3.4 With respect to each contribution that is made to a Trust prior to a Change in Control but not during any Threatened Change in Control Period, the amount, or property, so 12 contributed to such Trust shall be allocated by the Trustee to the Plan Accounts, and to the Participant Accounts, maintained within such Trust in such manner as the Applicable Company directs in written instructions delivered by the Applicable Company to the Trustee at the time of the contribution. 3.5 As of each Valuation Date, the Trust Fund for each Trust shall be revalued by the Trustee at its then current fair market value, as determined by the Trustee. The net investment gains and losses of each Trust Fund for each calendar year that ends prior to a Change in Control but not during a Threatened Change in Control shall be allocated by the Trustee, as of the last Valuation Date occurring in such year, among the Plan Accounts and Participant Accounts maintained within such Trust, in such manner as the Applicable Company shall specify in written instructions furnished by it to the Trustee. As of each Valuation Date following the occurrence of a Change in Control, or that falls within a Threatened Change in Control Period, the net investment gains and losses of each Trust Fund for the calendar year ending on such Valuation Date shall be allocated by the Trustee proportionately among the Plan Accounts and Participant Accounts maintained within such Trust, based on the value of such Accounts as of the immediately preceding Valuation Date. In making the foregoing allocation, the value of Plan Accounts and Participant Accounts in existence on the immediately preceding Valuation Date but not in existence on the current Valuation Date shall be disregarded. 13 3.6 Notwithstanding the provisions of Sections 3.4 and 3.5, as of each Benefit Valuation Date occurring prior to a Change in Control, but not during any Threatened Change in Control Period, the Trustee shall, in accordance with such written instructions as it has received from the Applicable Companies, record adjustments to the balance of each Participant Account maintained within a Plan Account to the extent necessary for such balance to equal the amount determined by multiplying (a) the balance of such Plan Account determined as of the most recent Valuation Date preceding such Benefit Valuation Date, by (b) a fraction the numerator of which is the Present Value of the Benefits accrued for the applicable Participant under the Plan in question, determined as of such Benefit Valuation Date, and the denominator of which is the aggregate Present Value of all of the Benefits accrued for all Participants under such Plan, determined as of such Benefit Valuation Date. 3.7 Any contribution made by a Company to its Trust pursuant to Sections 3.2.1(a), 3.2.1(b), 3.2.2(a) or 3.2.2(b) shall be allocated to the Plan Accounts maintained under such Trust in proportion to the respective amounts by which the aggregate Present Value of all Benefits accrued (or, in the case of contributions made under clause (ii) of Section 3.2.2(a) or 3.2.2(b), deemed to have accrued) for all Participants under each of the Plans in question, determined as of the dates specified in Sections 3.2.1(a), 3.2.1(b), 3.2.2(a) or 3.2.2(b), exceeds the balance of the Plan Account maintained hereunder with respect to each such Plan, determined as of the Valuation Date immediately 14 preceding such contribution. The amount so allocated to any Plan Account shall be further allocated to the Participant Accounts maintained within such Plan Account in proportion to the respective amounts by which the Present Value of the Benefits accrued (or, in the case of contributions made under clause (ii) of Section 3.2.2(a) or 3.2.2(b), deemed to have accrued) for each Participant under the Plan in question, determined as of the dates specified in Sections 3.2.1(a), 3.2.1(b), 3.2.2(a) or 3.2.2(b), exceeds the balance of the Participant Account maintained for such Participant, determined as of the Valuation Date immediately preceding such contribution. 3.8 The determinations of the Present Value of Benefits required to be made hereunder as of any Benefit Valuation Date, or other date, occurring prior to a Change in Control shall be made by an enrolled actuary selected by the Applicable Companies. As soon as practicable after each such determination has been made, each Company shall furnish the Trustee with a schedule setting forth the Present Value so determined of the Benefits accrued (or, if applicable, deemed to have accrued) for each Participant under each of the Company's Plans. The determinations of the Present Value of Benefits required to be made hereunder as of any Benefit Valuation Date, or other date, occurring after a Change in Control shall be made by an enrolled actuary selected by the Trustee. In making any allocation of contributions the Trustee is required to make under Section 3.7, the Trustee shall be entitled to rely, and shall be fully protected in relying, on any written determination of the 15 Present Value of any Benefit furnished to it in accordance with the provisions of this Section 3.8. In making any allocation of net investment gains and losses pursuant to the second sentence of Section 3.5, and in recording any adjustments to the balance of any Participant Account pursuant to Section 3.6, the Trustee shall be entitled to rely, and shall be fully protected in relying, on any written instructions furnished to it by the Applicable Companies. ARTICLE 4 Payments to Participants and Beneficiaries 4.1 Prior to a Change in Control, the Trustee shall make payments from the Trust Fund for any Trust to such Participants and Beneficiaries, in such manner, at such times, and in such amounts, as the Applicable Company shall direct in written instructions delivered to the Trustee. 4.2. After a Change in Control, the Trustee shall make payments from the Trust Fund of any Trust to Participants and Beneficiaries in accordance with the following provisions: (a) Prior to a Change in Control, each Company shall deliver to the Trustee a schedule ("Payment Schedule") substantially in the form annexed hereto as Exhibit C for each Participant of each Plan whose Benefits under such Plan may be paid from such Company's Trust after a Change in Control. The Payment Schedule shall (i) describe the events that must occur in order for the Participant's Benefits to become payable under the terms of the Plan; 16 (ii) specify the amount of the Participant's Benefits accrued under the Plan, as of the date on which the Payment Schedule is furnished to the Trustee, and provide a formula or such other instructions as will enable the Trustee to determine the amount of the Participant's Benefits as of the time they become payable under the terms of the Plan; (iii) specify the form in which the Participant's Benefits are to be paid, as provided for or available under the Plan; (iv) specify the time of commencement for payment of the Participant's Benefits under the Plan; and (v) specify the address and social security number of the Participant as well as the name, address, social security number and relation to the Participant of the Participant's Beneficiary. Prior to a Change in Control the Applicable Company may from time to time substitute a new Payment Schedule for, or amend, an existing Payment Schedule by delivering a new or amended Payment Schedule to the Trustee. Upon receipt of such new or amended Payment Schedule, the previous Payment Schedule shall be deemed revoked. Prior to a Change in Control, any Payment Schedule previously filed with the Trustee may be revoked by the Applicable Company by filing written notice of such revocation with the Trustee without delivering a new or amended Payment Schedule to the Trustee. Notwithstanding the foregoing, no Payment Schedule may be amended or revoked after a Change in Control or during a Threatened Change in Control Period; provided, however, that during a Threatened Change in Control Period, a Payment Schedule with respect to a Participant's Benefits under any Plan may be amended so as to reflect any amendment to the Plan made during such Threatened Change in Control Period that has the effect of increasing the amount of 17 the Benefits payable under the Plan with respect to the Participant, or that permits payment of such Benefits to be made in a form, or to commence at a time, more favorable to the Participant or his or her Beneficiary than as provided under the Plan prior to such amendment. Except as otherwise provided herein, after a Change in Control the Trustee shall make payments with respect to a Participant's Benefits under any Plan only in accordance with the Payment Schedule with respect to such Participant's Benefits under such Plan that is on file with the Trustee, and that has not been revoked, at the time such payments are to be made. (b) Any Participant or Beneficiary seeking to obtain payments from the Trust Fund for any Trust after a Change in Control shall first file with the Trustee a written request for payment in substantially the form annexed hereto as Exhibit D ("Payment Request Form"). In the Payment Request Form so filed, the Participant or Beneficiary shall (i) identify the Plan or Plans under which the Participant or Beneficiary has become entitled to payment of Benefits; (ii) describe the events that entitle the Participant or Beneficiary to receive payment of Benefits under the terms of the Plan or Plans, and affirm under oath that such events have occurred; (iii) affirm under oath that no amount of the Benefits with respect to which payment from the Trust Fund is sought was previously paid by the Applicable Company; and (iv) provide such information (including, without limitation, information as to the Participant's period of service, compensation and conditions of employment after a Change in Control) as will enable the Trustee to determine the amount of the Benefits that the Participant or Beneficiary is entitled to receive in accordance with the Payment Schedules furnished to the Trustee with respect to the Participant's Benefits under the Plan or Plans. 18 In the case of any Beneficiary seeking payments from a Trust Fund, the Beneficiary shall furnish to the Trustee, along with the Payment Request Form, a certified copy of the death certificate of the Participant, an inheritance tax waiver and such other documents as the Trustee may reasonably require, including, without limitation, certified copies of letters testamentary. For all purposes under this Agreement, the Trustee may rely, and shall be fully protected in relying, on the information contained in any Payment Request Form (and in any documents accompanying such form) filed with it by any Participant or Beneficiary. (c) As soon as practicable after a Payment Request Form has been filed with it by a Participant or Beneficiary, the Trustee, solely out of the applicable Trust Fund and with no obligation otherwise to make any payments, shall make payments to such Participant or Beneficiary in such manner, and at such times, and in such amounts, as the Trustee shall determine to be payable to such Participant or Beneficiary under the relevant Plan or Plans based on the most recent Payment Schedules applicable to the Participant or Beneficiary that were furnished to the Trustee by the Applicable Company prior to a Change in Control, and on the information contained in the Payment Request Form (and in any documents accompanying such Form) filed by the Participant or Beneficiary. The Trustee is authorized to retain an enrolled actuary to assist it in determining the amount of any Benefits payable to any Participant or Beneficiary pursuant to any Payment Request Form or Payment 19 Schedules filed by or for such Participant or Beneficiary and, in any case in which a Participant or Beneficiary has filed a Payment Request Form with respect to Benefits under any Plan for which an unrevoked Payment Schedule is not on file with the Trustee, to assist it in determining such Participant's or Beneficiary's entitlement to Benefits under such Plan. For all purposes under this Agreement, the Trustee may rely, and shall be fully protected in relying, on any advice given to it by such actuary as to the amount of Benefits payable hereunder to any Participant or Beneficiary. (d) Following the occurrence of a Change in Control, the Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of Benefits to be made from any Trust pursuant to the terms of this Agreement, and shall pay amounts withheld by it to the appropriate taxing authorities or determine that the amounts required to be withheld with respect to such payments have been reported, withheld and paid by the Applicable Company. Prior to a Change in Control, the Trustee shall report and withhold any federal, state or local taxes that may be required to be withheld with respect to any payment of Benefits to be made from any Trust pursuant to Section 4.1, but only to the extent that the Applicable Company has furnished to the Trustee, in the written instructions delivered to the Trustee pursuant to Section 4.1 directing it to make such payment, the amount of the federal, state or local taxes required to be withheld with respect to such 20 payment. The Trustee shall be entitled to rely, and shall be fully protected in relying, upon the information so furnished to it as to the amount of taxes to be withheld. 4.3. The entitlement of a Participant or Beneficiary to Benefits under any Plan shall be determined by the Applicable Company or such other party as may have been designated under the Plan, and any claim for such Benefits shall be considered and reviewed under the procedures set out in the Plan. Notwithstanding the foregoing, after a Change in Control, any Participant or Beneficiary for whom any unrevoked Payment Schedule is on file with the Trustee at the time of the Change in Control shall be presumed conclusively, for all purposes of this Agreement, to be entitled to any Benefit that the Trustee determines to be payable to such Participant or Beneficiary on the basis of the information contained in such Payment Schedule and in any Payment Request Form filed by the Participant or Beneficiary; and in such case, the provisions set forth in the immediately preceding sentence shall apply only with respect to any claim by the Participant or Beneficiary for Benefits that are in addition to, or in excess of, the Benefits that the Trustee has so determined to be payable to the Participant or Beneficiary. 4.4. Each payment made from the Trust Fund for any Trust with respect to a Participant's Benefits under any Plan shall be payable only from, and shall be charged against, the Plan Account maintained within such Trust Fund with respect to such Plan and the Participant Account established within such 21 Plan Account for the applicable Participant. Notwithstanding any other provision herein to the contrary, the Trustee shall not make a payment with respect to a Participant's Benefits under any Plan to the extent that the amount of the payment otherwise required to be made exceeds the amount then held in the Plan Account for such Plan or the amount then held in the Participant Account established within such Plan Account for the applicable Participant. If, because of the provisions of this Section 4.4, any amount otherwise required to be paid by the Trustee to a Participant or Beneficiary with respect to a Participant's Benefits under any Plan cannot be paid by the Trustee, such amount shall be paid to the Participant or Beneficiary by the Applicable Company. 4.5. At such time after a Change in Control as the aggregate amount of the payments made hereunder from the Participant Account maintained within any Plan Account for any Participant shall equal the maximum amount that may be paid from such Participant Account pursuant to the most recent Payment Schedule filed with respect to such Participant's Benefits under the Plan in question, the balance then remaining in such Participant Account shall be allocated and credited, on a pro rata basis, to all other Participant Accounts maintained within such Plan Account, based on the respective values of such other Participant Accounts determined as of the most recent Valuation Date. 22 At such time after a Change in Control as the aggregate amount of the payments made from any Plan Account shall equal the maximum amount that may be paid from such Plan Account pursuant to the most recent Payment Schedules filed with respect to Participants' Benefits under the Plan for which such Plan Account was established, the balance then remaining in such Plan Account shall be allocated and credited, on a pro rata basis, to all other Plan Accounts and Participant Accounts maintained within the same Trust Fund, based on the respective values of such other Plan Accounts and Participant Accounts determined as of the most recent Valuation Date. 4.6 Notwithstanding any other provision of this Agreement to the contrary, if at any time any Trust is finally determined by the Internal Revenue Service (the "IRS") not to be a "grantor trust," with the result that the income of such Trust is not treated as income of the Applicable Company pursuant to Sections 671 through 679 of the Code, such Trust shall immediately terminate and the amounts allocated to each Plan Account and Participant Account within such Trust shall be paid in a cash lump sum as soon as practicable by the Trustee to the Participants for whom such Accounts were maintained. If any Company should receive notice of such final determination from the IRS, such Company shall promptly furnish written notice of such final determination to the Trustee. 4.7 Notwithstanding any other provision of this Agreement to the contrary, if the IRS should finally determine that any amounts held in any Trust are includible in the gross income of any Participant or Beneficiary prior to payment of such 23 amounts from the Trust, the Trustee shall, as soon as practicable, pay such amounts to such Participant or Beneficiary from such Trust. For purposes of this Section 4.7, the Trustee shall be entitled to rely on an affidavit by a Participant or Beneficiary to the effect that such a determination has occurred. 4.8 Each Company may make payment of Benefits directly to Participants or their Beneficiaries as they become due under the terms of the Applicable Plans. After a Change in Control, a Company that decides to make payment of Benefits directly shall notify the Trustee in writing of its decision prior to the time amounts are payable to the Participants or their Beneficiaries. In addition, each Company shall remain primarily liable to pay all of the Benefits provided for under its Plans, to the extent such Benefits are not payable from such Company's Trust pursuant to this Agreement. Accordingly, if the principal of the Applicable Company's Trust, and any earnings thereon, are not sufficient to make payments of Benefits in accordance with the terms of such Company's Plans, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Applicable Company in writing where principal and earnings of the Company's Trust are not sufficient. 24 ARTICLE 5 Legal Defense Fund 5.1. On the written direction of a Company, the Trustee shall establish within the Trust Fund for such Company's Trust a separate fund, hereinafter referred to as a "Legal Defense Fund". A Company's Legal Defense Fund shall consist of such portions of its contributions to its Trust as the Company shall specify in writing at the time of contribution, together with all income, gains and losses and proceeds from the investment, reinvestment and sale thereof, less all payments therefrom and expenses charged thereto in accordance with the provisions of this Article 5. Subject to Article 6, a Company's Legal Defense Fund shall be held and administered by the Trustee exclusively for the purpose of defraying the costs and expenses incurred by the Trustee in performing its duties under Sections 5.3 and 5.4. 5.2. A Company's Legal Defense Fund shall be maintained and administered as a separate segregated account, provided, however, that the assets of any Legal Defense Fund may be commingled with all other assets of the same Trust, and with the assets of any other Trust, solely for investment purposes. 5.3. If, at any time after a Change in Control, a Participant or Beneficiary notifies the Trustee in writing that a Company has refused to pay a claim asserted by such Participant or Beneficiary under any of such Company's Plans, the Trustee shall promptly review such claim and determine whether it has any basis in law and fact. If the Trustee determines that the claim has no basis in law and fact, the Trustee shall notify the Participant or Beneficiary of such determination, and thereafter 25 shall take no further action with respect to the claim. If the Trustee determines that there is a basis in law and fact for the Participant's or Beneficiary's claim, the Trustee shall take the following actions to assist the Participant or Beneficiary (hereafter referred to as the "Claimant") to recover on such claim: (a) The Trustee shall promptly attempt to negotiate with the Applicable Company to obtain payment, settlement or other disposition of the claim, subject to the Claimant's consent. (b) If (i) negotiations fail after 60 days of their commencement to result in a payment, settlement or other disposition acceptable to the Claimant, (ii) the Trustee at any time reasonably believes that further negotiations would not be in the Claimant's best interest or (iii) any applicable statute of limitations would otherwise expire within 60 days, the Trustee shall advise the Claimant of such fact. Thereupon, the Claimant may, by filing with the Trustee a written authorization in substantially the form attached hereto as Exhibit E, direct the Trustee to institute and maintain legal proceedings (the "Litigation") against the Applicable Company to recover on the claim on behalf of the Claimant. (c) The Trustee shall direct the course of any Litigation and shall keep the Claimant informed of the progress thereof at such intervals as the Trustee deems appropriate, but no less frequently than quarterly. The Trustee shall have the discretion to determine the form and nature that any Litigation shall take, and the procedural rules and laws applicable to such Litigation shall supersede any inconsistent provision of this Agreement. (d) If the Claimant directs in writing that the Litigation be settled or discontinued, the Trustee shall take all appropriate action to follow such direction, provided that such written direction specifies the terms and conditions of the settlement or discontinuance and provided further that the Claimant, if requested to do so by the Trustee, executes and delivers to the Trustee a document in a form acceptable to the Trustee releasing the Trustee and holding it harmless from any liability resulting from its following such direction. If the Claimant refuses to consent to a settlement or other disposition of the Litigation on terms recommended in writing by the Trustee, the Trustee may proceed, in its sole and absolute 26 discretion, to take such action as it deems appropriate in the Litigation, including settlement or discontinuance of the Litigation; provided, however, that the Trustee shallafford the Claimant at least 14 days' advance notice in writing of any decision by the Trustee to settle or otherwise discontinue the Litigation. (e) A Claimant may at any time revoke the authorization of the Trustee to continue any Litigation on his behalf by delivering to the Trustee a written revocation in substantially the form attached as Exhibit F hereto, and notifying the Trustee in writing that the Claimant has appointed his own counsel (whose fees and expenses shall not be paid from any Legal Defense Fund) to represent the Claimant in the Litigation in lieu of counsel retained by the Trustee. Upon the Trustee's receipt of such revocation and notice, the Trustee shall have no obligation to proceed further on behalf of the Claimant in the Litigation, or to pay any costs or expenses incurred in the Litigation after the date on which such revocation and notice is delivered to the Trustee. (f) The Trustee shall be empowered to retain counsel and other appropriate experts, including actuaries and accountants, to assist it in making any determination under this Section 5.3, in determining whether to pursue, settle or discontinue any Litigation, and to prosecute and maintain any such Litigation on behalf of any Claimant. Notwithstanding the foregoing, each Company, prior to a Change in Control, may designate in writing the counsel to be retained by the Trustee after a Change in Control to assist in enforcing the rights of Claimants under such Company's Plans in accordance with the provisions of this Section 5.3. If the counsel so designated declines to provide representation, or if such counsel's representation would involve a conflict of interest with the Trustee, or if the Trustee is not satisfied with the quality of representation provided, the Trustee may dismiss such counsel and engage another qualified law firm for this purpose; provided, however, that any law firm so engaged may not be the same law firm that represents any Company after a Change in Control. No Company may dismiss or engage such counsel, or cause the Trustee to engage or dismiss such counsel, after a Change in Control. (g) All costs and expenses incurred by the Trustee in connection with the performance of its duties under this Section 5.3, including, without limitation, the payment of reasonable fees, costs and disbursements of any counsel, actuaries, accountants or other experts retained by the Trustee pursuant to Section 5.3(f), shall be charged to and paid from the Applicable Company's Legal Defense Fund. 27 (h) Notwithstanding any provision herein to the contrary, the Trustee shall be required to act under this Section 5.3, including, without limitation, instituting or continuing any Litigation, only to the extent there are sufficient amounts available in the Applicable Company's Legal Defense Fund to defray the costs and expenses the Trustee reasonably anticipates will be incurred in connection with such action. If, at any time after a Claimant has filed a written notice with the Trustee under Section 5.3(a) the Trustee determines that there will not be sufficient amounts in the Applicable Company's Legal Defense Fund to defray such costs and expenses, the Trustee shall promptly advise the Claimant of such fact. Unless within 30 days after it has given such notice to the Claimant the Trustee receives from the Claimant assurances, in such form as may be satisfactory to the Trustee, that any costs and expenses in excess of amounts available in the Applicable Company's Legal Defense Fund will be paid by the Claimant, the Trustee shall have no obligation to take any further action on behalf of the Claimant pursuant to this Section 5.3; and, if a Litigation on behalf of the Claimant is then pending, the Trustee may discontinue such Litigation on such terms and conditions as it deems appropriate in its sole discretion. 5.4. If, at any time after a Change in Control or during a Threatened Change in Control Period, legal proceedings are brought against the Trustee by a Company or other party seeking to invalidate any of the provisions of this Agreement as they relate to a Company's Trust, or seeking to enjoin the Trustee from paying any amounts from any Trust or from taking any other action otherwise required or permitted to be taken by the Trustee under this Agreement with respect to any Trust, the Trustee shall take all steps that may be necessary in such proceeding to uphold the validity and enforceability of the provisions of this Agreement as they relate to such Trust. All costs and expenses incurred by the Trustee in connection with any such proceeding (including, without limitation, the payment of reasonable fees, costs and disbursements of any counsel, 28 actuaries, accountants or other experts retained by the Trustee in connection with such proceeding) shall be charged to and paid from the Applicable Company's Legal Defense Fund. Any costs and expenses so incurred by the Trustee in excess of amounts available in the Applicable Company's Legal Defense Fund shall be charged to and paid from the other assets of such Company's Trust. Any such excess costs and expenses so charged shall be allocated to the Plan Accounts maintained within such Trust, and to the Participant Accounts maintained within such Plan Accounts, on a pro rata basis. 5.5. Each Company's Legal Defense Fund shall continue to be held and administered by the Trustee for the purposes described in Section 5.1 until such time as all Benefits to which all Participants are entitled under all of such Company's Plans shall have been paid in full to such Participants or their Beneficiaries. Any balance then remaining in a Company's Legal Defense Fund shall be distributed to such Company. ARTICLE 6 Insolvency 6.1. The Trustee shall cease making payment hereunder of Benefits payable to Participants and their Beneficiaries pursuant to a Company's Plans if the Company is Insolvent. 6.2. At all times during the continuance of each Trust, as provided in Section 2.4 hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Applicable Company under federal and state law as set forth below: 29 (a) The Board of Directors and Chief Executive Officer of each Company shall have the duty to inform the Trustee in writing of such Company's Insolvency. If a person claiming to be a creditor of a Company alleges in writing to the Trustee that such Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue making payment from such Company's Trust to Participants and Beneficiaries. (b) Unless the Trustee has actual knowledge of a Company's Insolvency, or has received notice from a Company or a person claiming to be a creditor of such Company alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning a Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (c) If at any time the Trustee has determined that a Company is Insolvent, the Trustee shall discontinue making payments from such Company's Trust to Participants and their Beneficiaries and shall hold the assets of such Trust for the benefit of the Company's general creditors. Nothing in this Agreement shall in any way diminish any rights of Participants or their Beneficiaries to pursue their rights as general creditors of the Applicable Company with respect to Benefits due under the Company's Plans or otherwise. (d) The Trustee shall resume making payment from a Company's Trust of Benefits to Participants or their Beneficiaries in accordance with Article 4 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent, or is no longer Insolvent. 6.3 Provided that there are sufficient assets, if the Trustee discontinues the payment of Benefits from any Trust pursuant to Section 6.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Participants or their Beneficiaries under the terms of the Applicable Company's Plan for the period of such discontinuance, less the 30 aggregate amount of any payments made to Participants or their Beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. ARTICLE 7 Payments to Company 7.1 Prior to a Change in Control (but not during a Threatened Change in Control Period), a Company may, by written notice to the Trustee, direct the Trustee to pay to such Company, out of the Trust Fund for such Company's Trust, such amount as is specified in the notice. Any such notice shall specify the Plan Accounts and the Participant Accounts, if any, which shall be debited with respect to such payment. If the amount that would remain in the Trust Fund after any such payment would be less than the unpaid fees and expenses of the Trustee properly chargeable to such Trust Fund, the Trustee may deduct such fees and expenses from the payment that otherwise would be made to the Company. 7.2 Except as provided in Article 6 hereof, during such time as the Trust is irrevocable, the Applicable Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of Benefits have been made to Participants and their Beneficiaries pursuant to the terms of the Company's Plans. 31 ARTICLE 8 Investment Authority and Disposition of Income 8.1 Except as otherwise provided in Sections 8.2, 8.4, and 8.5, the Trustee, prior to a Change in Control, shall invest and reinvest the assets of each Trust, in its sole discretion, in such investments as may be permitted in accordance with any written investment guidelines that may be delivered to the Trustee from time to time by the Applicable Company and that are acceptable to the Trustee or, at any time when no such investment guidelines are in effect, in Permitted Investments. 8.2 Prior to a Change in Control, the Applicable Company may in its sole discretion appoint an investment manager to manage the investment of any part or all of the Trust Fund for any Trust. The Applicable Company shall promptly inform the Trustee in writing of any such appointment, shall furnish the Trustee with a copy of the instrument pursuant to which any investment manager is so appointed, and shall inform the Trustee in writing as to the specific portions of the Trust Fund for its Trust that will be subject to the management of such investment manager. During the term of any such appointment, the investment manager shall have the sole responsibility for the investment and reinvestment of that portion of any Trust Fund subject to its investment management, and the Trustee shall have no responsibility for, or liability with respect to, the investment of such portion of such Trust Fund. In exercising the powers granted to it hereunder, the Trustee shall follow the directions of any investment manager 32 with respect to the portion of any Trust Fund subject to management by such investment manager. All directions given by an investment manager to the Trustee shall be in writing, signed by an officer (or a partner) of the investment manager, or by such other person or persons as may be designated by an officer (or a partner) of the investment manager. The investment manager may directly place orders for the purchase or sale of securities, subject to such conditions as may be approved by the Applicable Company in authorizing the investment manager to effect transactions directly with respect to the portion of the Trust Fund for any Trust subject to its management, provided that the Trustee shall nevertheless retain custody of the assets comprising such portion of the Trust Fund. The Applicable Company, by written notice to the Trustee, may at any time terminate its appointment of any investment manager. In such event, the Applicable Company shall either appoint a successor investment manager for the portion of the Trust Fund in question, or direct that such portion of the Trust Fund thereafter be invested and reinvested by the Trustee in accordance with the provisions of Section 8.1. Until receipt of such written notice, the Trustee shall be fully protected in relying upon the most recent prior written notice of appointment of an investment manager. 8.3 After a Change in Control, the Trustee shall have exclusive authority and discretion to manage and control the investment and reinvestment of the Trust Fund for each Trust; provided, however, that the Trust Fund for each Trust shall be so invested and reinvested only in Permitted Investments. 33 8.4 In no event may the assets of any Trust be invested in securities (including stock or rights to acquire stock) or obligations issued by any Company, other than a de minimis amount held in common investment vehicles in which the Trustee invests. All rights associated with assets of each Trust shall be exercised by the Trustee or an Investment Manager appointed under Section 8.2, and shall in no event be exercisable by or rest with Participants. 8.5 During the term of each Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. ARTICLE 9 General Powers and Duties of Trustee 9.1 In addition to the other powers granted to it under this Agreement, the Trustee shall have the following administrative powers and authority with respect to the property comprising the Trust Fund for each Trust: (a) To sell, exchange or transfer any such property at public or private sale for cash or on credit and grant options for the purchase or exchange thereof, including call options for property held in the Trust Fund and put options for the purchase of such property, including, without limitation, at any time to sell any asset other than cash held in the Trust Fund to pay Benefits if there is not sufficient cash in the Trust Fund to pay Benefits. (b) To participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to any such property, and to consent to or oppose any such plan or any action thereunder, or any contract, lease, mortgage, purchase, sale or other action by any corporation or other entity. (c) To deposit any such property with any protective, reorganization or similar committee; to delegate discretionary power to any such committee; and to pay part of the expenses and compensation of any such committee and 34 any assessments levied with respect to any property so deposited. (d) To exercise any conversion privilege or subscription right available in connection with any such property; to oppose or to consent to the reorganization, consolidation, merger or readjustment of the finances of any corporation, company or association, or to the sale, mortgage, pledge or lease of the property of any corporation, company or association of any of the securities of which may at any time be held in the Trust Fund and to do any act with reference thereto, including the exercise of options, the making of agreements or subscriptions and the payment of expenses, assessments or subscriptions, which may be deemed necessary or advisable in connection therewith, and to hold and retain any securities or other property which it may so acquire. (e) To commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings; to settle, compromise or submit to arbitration, any claims, debts or damages, due or owing to or from the Trust. (f) To exercise, personally or by general or limited power of attorney, any right, including the right to vote, appurtenant to any securities or other such property. (g) To borrow money from any lender in such amounts and upon such terms and conditions as shall be deemed advisable or proper to carry out the purposes of the Trust and to pledge any securities or other property for the repayment of any such loan. (h) To engage any legal counsel, including (except after the occurrence of a Change in Control) counsel to any Company, any enrolled actuary, any accountant or any other suitable agents, to consult with such counsel, enrolled actuary, accountant or agents with respect to the construction hereof, the duties of the Trustee hereunder, the transactions contemplated by this Agreement or any act which the Trustee proposes to take or omit, to rely upon the advice of such counsel, enrolled actuary, accountant or agents, and to pay its reasonable fees, expenses and compensation from the Trust Fund. (i) To register any securities held by it in its own name or in the name of any custodian of such property or of its nominee, including the nominee of any system for the central handling of securities, with or without the addition of words indicating that such securities are held in a fiduciary capacity, to deposit or arrange for the deposit of any such securities with such a system and to hold any securities in bearer form; provided, however, that no such 35 holding shall relieve the Trustee of its responsibility for the safe custody and disposition of the Trust Fund in accordance with the provisions of this Agreement, the Trustee's books and records shall at all times show that such property is part of the Trust Fund, and the Trustee shall be absolutely liable for any loss occasioned by the acts of its nominee or nominees with respect to securities registered in the name of the nominee or nominees. (j) To make, execute and deliver, as Trustee, any and all deeds, leases, notes, bonds, guarantees, mortgages, conveyances, contracts, waivers, releases or other instruments in writing necessary or proper for the accomplishment of any of the powers granted herein. (k) To transfer assets of the Trust Fund to a successor trustee as provided in Section 13.4 hereof. (l) To exercise, generally, any of the powers which an individual owner might exercise in connection with property either real, personal or mixed held in the Trust Fund, and to do all other acts that the Trustee may deem necessary or proper to carry out any of the powers granted to it hereunder or that otherwise may be in the best interests of the Trust Fund. (m) To hold any portion of the Trust Fund in cash pending investment, or for the payment of expenses and Benefits, without liability for interest. (n) To vote personally or by proxy and to delegate power and discretion over such proxy on account of securities held in the Trust Fund. (o) To hold assets in time or demand deposits (including deposits with the Trustee in its individual capacity that pay a reasonable rate of interest). (p) To invest and reinvest all or any specified portion of any Trust Fund through the medium of any common, collective, or commingled trust fund that has been or may hereafter be established and maintained by the Trustee. (q) To invest in mutual funds registered with the Securities Exchange Commission under the Investment Company Act of 1940. The Trustee also shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an 36 insurance policy is held as an asset of any Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor trustee, or to loan to any person the proceeds of any borrowing against such policy. Prior to a Change in Control, the Trustee shall exercise the powers referred to in Section 9.1(h) only as directed by the Applicable Company; and, with respect to the portion of any Trust Fund for which an investment manager has been appointed under Section 8.2, the Trustee shall exercise any power referred to in this Section 9.1, as it relates to the investment management of such portion of the Trust Fund, only as directed by such investment manager. After a Change in Control, the Trustee may exercise such powers in its sole and absolute discretion, except as otherwise provided in Article 8. Notwithstanding any powers granted to the Trustee pursuant to this Agreement or to applicable law, the Trustee shall not have any power that could give any Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code. 9.2 After a Change in Control, the Trustee shall, subject to Article 6 hereof, discharge its duties under this Agreement solely in the interest of the beneficiaries of each Trust and (i) for the exclusive purpose of providing Benefits to such beneficiaries and defraying reasonable expenses of 37 administering such Trust; (ii) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and (iii) by diversifying the investments of the Trust Fund for each Trust so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. 9.3 The Trustee shall not be required to give any bond or any other security for the faithful performance of its duties under this Agreement, except as required by law. 9.4 Except as otherwise expressly provided herein, the Trustee shall not be responsible in any respect for administering any Plan; nor shall the Trustee be responsible for the adequacy of the Trust Fund for any Trust to meet and discharge all payments and liabilities under any Plan. 9.5 The Trustee shall be under no duties whatsoever except such duties as are specifically set forth as such in this Agreement, and no implied covenant or obligation shall be read into this Agreement against the Trustee. Except as otherwise provided in Article 5, the Trustee shall not be required to take any action toward the execution or performance of any Trust created hereunder or to prosecute or defend any suit or claim in respect thereof, unless indemnified to its satisfaction against loss, liability, and reasonable costs and expenses. The Trustee shall be under no liability or obligation to anyone with respect to any failure on the part of any Company to perform any of its 38 obligations under any Plan or under this Agreement. 9.6 The Applicable Company shall pay and shall protect, indemnify and save harmless the Trustee and its officers, directors or trustees, employees and agents from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, damages, reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) of any nature arising from or relating to any action or failure to act by the Trustee, its officers, directors or trustees, employees and agents with respect to any Trust, or arising from or relating to the transactions contemplated by this Agreement that pertain to or affect such Trust, except to the extent that any such loss, liability, action, suit, demand, damage, cost or expense is the result of the negligence or willful misconduct of the Trustee, its officers, directors or trustees, employees or agents. If the Trustee shall become entitled to indemnification by any Company pursuant to this Section 9.6 and such Company fails to provide such indemnification to the Trustee within 30 days of the Company's receipt of a written request from the Trustee for such indemnification, the Trustee may apply assets of such Company's Trust in full satisfaction of the Company's obligation to make such indemnification. Promptly after any assets of any Trust are so applied, the Trustee shall institute legal proceedings on behalf of the Trust to recover from the Applicable Company an amount equal to the amount of any Trust assets so applied. 39 ARTICLE 10 Taxes, Expenses, and Compensation of Trustee 10.1 Each Company shall pay any federal, state, local or other taxes imposed or levied with respect to the corpus and/or income of its Trust or any part thereof under existing or future laws and such Company in its discretion, or the Trustee in its discretion, may contest the validity or amount of any tax, assessment, claim or demand respecting such Trust or any part thereof. 10.2 Each Company shall pay to the Trustee its allocable share of the compensation that is payable to the Trustee for its services hereunder pursuant to the schedule of fees annexed hereto as Exhibit G. Each Company shall also pay its allocable share of the reasonable and necessary expenses incurred by the Trustee in the performance of its duties under this Agreement, including reasonable fees of any counsel, actuary, accountant or other agent engaged by the Trustee pursuant to this Agreement. Any such compensation or expenses shall be allocated among the Companies as follows: in the case of any such compensation that is specifically chargeable to, or any such expenses that were specifically incurred with respect to, a particular Trust, the amount of such compensation or expenses shall be allocated solely to the Applicable Company; in the case of any such compensation that is not specifically chargeable to, or any such expenses that were not specifically incurred with respect to, a particular Trust, the amount of such 40 compensation or expenses shall be allocated to the Companies in proportion to the respective values of the Trust Funds for the Companies' Trusts as of the Valuation Date immediately preceding the date as of which the Trustee bills the Companies for such compensation or expenses. Each Company's allocable share of such compensation and expenses shall be charged against and paid from the Trust Fund for such Company's Trust, to the extent not paid by such Company within 45 days after the date on which the Trustee bills the Company for such compensation and expenses. Any amount so charged against and paid from the Trust Fund for any Company's Trust shall be further allocated to and charged against the Plan Accounts and Participant Accounts maintained within such Trust (a) in such manner as the Applicable Company directs in written instructions delivered by it to the Trustee, in the case of any amount so charged and paid prior to a Change in Control; and (b) in proportion to the respective balances of such Accounts as determined as of the most recent Valuation Date, in the case of any amount so charged and paid after a Change in Control. ARTICLE 11 Accounting by Trustee 11.1 For each Trust, the Trustee shall keep accurate and detailed accounts of all its investments, receipts, and disbursements under this Agreement. Such person or persons as the Applicable Company shall designate shall be allowed to inspect the books of account relating to such Company's Trust upon request at any reasonable time during the business hours of the Trustee. 41 11.2 Within 90 days after the close of each calendar year, the Trustee shall transmit to each Company, and certify the accuracy of, a written statement of the assets and liabilities of the Trust Fund for such Company's Trust at the close of that year, showing the current value of each asset at that date, and a written account of all the Trustee's transactions relating to such Trust Fund during the period from the last previous accounting to the close of that year. For the purposes of this Section 11.2, the date of the Trustee's resignation or removal as provided in Article 13 hereof shall be deemed to be the close of a calendar year. 11.3 Unless a Company shall have filed with the Trustee written exceptions or objections to any such statement and account within 90 days after receipt thereof, such Company shallbe deemed to have approved such statement and account; and in such case or upon the written approval by such Company of any such statement and account, the Trustee shall be forever released and discharged with respect to all matters and things embraced in such statement and account as though it had been settled by decree of a court of competent jurisdiction in an action or proceeding to which the Company and all persons having any beneficial interest in its Trust were parties. 11.4 Nothing contained in this Agreement or in any Plan shall deprive the Trustee of the right to have a judicial settlement of its accounts with respect to any Trust. In any proceeding for a judicial settlement of the Trustee's accounts or for instructions in connection with any Trust, the only other 42 necessary party thereto in addition to the Trustee shall be the Applicable Company. If the Trustee so elects, it may bring in as a party or parties defendant any other person or persons. No person interested in any Trust, other than the Applicable Company, shall have a right to compel an accounting, judicial or otherwise, by the Trustee, and each such person shall be bound by all accounting by the Trustee to such Company, as herein provided, as if the account had been settled by decree of a court of competent jurisdiction in an action or proceeding to which such person was a party. ARTICLE 12 Communications 12.1 With respect to any Trust, the Trustee shall be fully protected in relying upon any written notice, instruction, direction or other communication signed by an officer of the Applicable Company. Each Company from time to time shall furnish the Trustee with the names and specimen signatures of the officers of the Company authorized to act or give directions hereunder and shall promptly notify the Trustee of the termination of office of any such officer of the Company and the appointment of a successor thereto. Until notified in writing to the contrary, the Trustee shall be fully protected in relying upon the most recent list of the officers of the Company furnished to it by the Company. 12.2 Any action required by any provision of this Agreement to be taken by the board of directors of a Company shall be evidenced by a resolution of such board of directors 43 certified to the Trustee by the Secretary or an Assistant Secretary of the Company under its corporate seal, and the Trustee shall be fully protected in relying upon any resolution so certified to it. Unless other evidence with respect thereto has been specifically prescribed in this Agreement, any other action of a Company under any provision of this Agreement, including any approval of or exceptions to the Trustee's accounts, shall be evidenced by a certificate signed by an officer of the Company, and the Trustee shall be fully protected in relying upon such certificate. The Trustee may accept a certificate signed by an authorized officer of a Company as proof of any fact or matter that it deems necessary or desirable to have established in the administration of such Company's Trust (unless other evidence of such fact or matter is expressly prescribed herein) and the Trustee shall be fully protected in relying upon the statements in the certificate. 12.3 The Trustee shall be entitled conclusively to rely upon any written notice, instruction, direction, certificate or other communication believed by it to be genuine and to be signed by the proper person or persons, and the Trustee shall be under no duty to make investigation or inquiry as to the truth or accuracy of any statement contained therein. 12.4 Until notice be given to the contrary, communications to the Trustee shall be sent to it at its office at 210 Main Street, Hackensack, New Jersey 07601, Attention: Corporate Agency Administration, Investment Management Division; and communications to any Company shall be sent to it c/o GPU 44 Service, Inc., 100 Interpace Parkway, Parsippany, New Jersey 07054-1149, Attention: Treasurer. ARTICLE 13 Resignation or Removal of Trustee 13.1 The Trustee may resign as trustee of any Trust at any time by written notice to the Applicable Company, which resignation shall be effective 60 days after the Company's receipt of such notice unless the Company and the Trustee agree otherwise. The Trustee may be removed as trustee of any Trust by action of the board of directors of the Applicable Company, at any time upon 60 days' written notice to the Trustee, or upon shorter notice if acceptable to the Trustee. In the event it resigns or is removed, the Trustee shall have a right to have its accounts settled as provided in Article 11 hereof. 13.2 Notwithstanding the provisions of Section 13.1, the Trustee may not be removed as trustee of any Trust after a Change in Control or during a Threatened Change in Control Period without the written consent of at least two-thirds in number of the Participants who are, or who may become, entitled to receive payments from such Trust. The Applicable Company shall furnish the Trustee with evidence to establish that such majority in number of such Participants has granted written consent to such removal. 13.3 If the Trustee resigns or is removed as trustee of any Trust, a successor shall be appointed by the Applicable Company, by action of its board of directors, by the effective date of such resignation or removal. Any successor trustee so 45 appointed shall be a bank as defined under the Investment Advisers Act of 1940, having a net worth in excess of $100,000,000 or having assets in excess of $2,000,000,000. After a Change in Control or during a Threatened Change in Control Period, such appointment of a successor trustee shall be approved in writing by at least two-thirds in number of the Participants who are or may become entitled to receive payments from such Trust. Notwithstanding the foregoing, if no such appointment of a successor trustee has been made by the effective date of such resignation or removal, the Trustee may apply to a court of competent jurisdiction for appointment of a successor trustee or for instructions. All expenses of the Trustee in connection with such proceeding shall be allowed as administrative expenses of the Trust and shall be paid by the Applicable Company. 13.4 Each successor trustee shall have the powers and duties conferred upon the Trustee in this Agreement, and the term "Trustee" as used in this Agreement, except where the context otherwise requires, shall be deemed to include any successor trustee. Upon designation or appointment of a successor trustee for any Trust, the Trustee shall transfer and deliver the Trust Fund for such Trust to the successor trustee, reserving such sums as the Trustee shall deem necessary to defray its expenses in settling its accounts with respect to such Trust, to pay any of its compensation with respect to such Trust that is due and unpaid, and to discharge any obligation of such Trust for which the Trustee may be liable. If the sums so reserved are not sufficient for these purposes, the Trustee shall be entitled to 46 recover the amount of any deficiency from either the Applicable Company or the successor trustee, or both. When the Trust Fund for such Trust shall have been transferred and delivered to the successor trustee and the accounts of the Trustee for such Trust have been settled as provided in Article 11 hereof, the Trustee shall be released and discharged from all further accountability or liability for the Trust Fund for such Trust and shall not be responsible in any way for the further disposition of such Trust Fund or any part thereof. ARTICLE 14 Amendments and Termination 14.1 Subject to Section 14.2, any or all of the provisions of this Agreement and any Exhibits annexed hereto, as they relate to any Company's Trust, may be amended at any time, without the consent of any Participant or Beneficiary, by a written instrument of amendment, duly executed by the Applicable Company and the Trustee. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Applicable Company's Plans or shall make the Applicable Company's Trust revocable after it has become irrevocable in accordance with Section 2.2 hereof. 14.2 No amendment may be made to delete a Participant from Exhibit A or to delete a Plan from Exhibit B and no other provision of this Agreement may be amended (i) during a Threatened Change in Control Period, (ii) after a Change in Control, (iii) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who 47 effectuates a Change in Control or (iv) otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs unless in any such case the written consent of at least two-thirds in number of the Participants who are or may become entitled to payments from each Trust affected by such amendment is obtained, in which case such amendment may be made. The Trustee may request that the Applicable Company or Companies furnish evidence to establish that at least two-thirds of the Participants have granted written consent to such an amendment. 14.3 Unless sooner revoked in accordance with Section 2.2 hereof, each Trust shall terminate on the date on which Participants and their Beneficiaries are no longer entitled to receive Benefits pursuant to the terms of the Applicable Company's Plans. Upon termination of any Trust, any assets remaining in the Trust Fund for such Trust shall be paid by the Trustee to the Applicable Company. ARTICLE 15 Miscellaneous 15.1 Any provision of this Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 15.2 Benefits payable to Participants and their Beneficiaries under this Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, 48 execution or other legal or equitable process. 15.3 This Agreement shall be governed by, and shall be construed in accordance with, and each Trust hereby created shall be administered in accordance with, the laws of the State of New Jersey. 15.4 The titles to Articles of this Agreement are placed herein for convenience of reference only, and this Agreement is not to be construed by reference thereto. 15.5 This Agreement shall bind and inure to the benefit of the successors and assigns of each Company and the Trustee, respectively, and all Participants and Beneficiaries under the Companies' Plans. 15.6 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute but one instrument, which may be sufficiently evidenced by any counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names by their duly authorized officers under their corporate seals as of the day and year first above written. 49 GPU INC. By:___________________________________ J. R. Leva, Chairman and Chief Executive Officer ATTEST: _____________________________ JERSEY CENTRAL POWER & LIGHT COMPANY By:__________________________________ J. R. Leva, Chairman of the Board and Chief Executive Officer ATTEST: ____________________________ GPU NUCLEAR, INC. By:__________________________________ T.G. Broughton, President and Chief Executive Officer ATTEST: ____________________________ SUMMIT BANK, Trustee By:__________________________________ ATTEST: ___________________________ 50 EXHIBIT A List of Participants Set forth below is a list, for each Company, of the persons who are to be treated as Participants for purposes of the annexed Agreement. Company Participants GPU Inc. L. J. Appell, Jr. D. J. Bainton T. H. Black J. F. Burditt D. L. Grove T. B. Hagen H. F. Henderson, Jr. H. R. O'Leary J. W. Oswald J. M. Pietruski C. A. Rein P. R. Roedel C. A. Trost P. K. Woolf Jersey Central Power & Light Company G. E. Persson S. C. Van Ness S. B. Wiley GPU Nuclear, Inc. L. L. Humphreys R. V. Laney J. D. Townsend C. A. Trost W. A. Wilson W. F. Witzig 51 EXHIBIT B Covered Plans and Benefits Set forth below is a list, for each Company, of the plans, programs, policies or agreements that are to be treated as "Plans", and the amounts payable under the Plans that are to be treated as "Benefits", for purposes of the annexed Agreement. GPU, Inc. 1. All benefit amounts payable under the Deferred Remuneration Plan for Outside Directors of GPU, Inc. 2. All benefit amounts payable under the Retirement Plan for Outside Directors of GPU Inc. Jersey Central Power & Light Company 1. All benefit amounts payable under the Deferred Remuneration Plan for Outside Directors of Jersey Central Power & Light Company. GPU Nuclear, Inc. 1. All benefit amounts payable under the Deferred Remuneration Plan for Outside Directors of GPU Nuclear, Inc. EXHIBIT C Payment Schedule [Material To Be Added.] EXHIBIT D PARTICIPANT'S PAYMENT REQUEST FORM I, _______________________________________________, a Participant [or Beneficiary] in the GPU System Companies Master Directors' Benefits Protection Trust (the "Trust"), adopted September 1, 1995 and amended November 7, 1996, pursuant to Section 4.3 thereof, hereby request that [Name of Bank], as Trustee thereunder, make payment to me of the Benefits to which I am entitled as [Participant or Beneficiary] in accordance with the terms of the Trust Agreement and the following [Company Name] Plans: _______________________________ _______________________________ _______________________________ 52 _______________________________ I hereby attest, certify and affirm that to the best of my knowledge and belief the following events, upon which entitlement to and payment of Benefits under said Plans is conditioned, have occurred: [Insert Description of events that have occurred] I further attest, certify and affirm that [Name of Company] has not paid any of the Benefits claimed herein under said plans. I am [or The Participant was] ____ years of age, having been born on [Date of Birth]. I have been/was [or the Participant was] employed by [Name of Company] from [Date] to [Date]. The [Name of Company] records detailing my [his/her] compensation and the terms and conditions of employment, if any, are attached hereto and made a part hereof. Dated:_________________ ___________________________ [Name of Participant] ___________________________ ___________________________ [Address & Telephone No.] EXHIBIT E AUTHORIZATION TO TRUSTEE TO COMMENCE LITIGATION I, _______________________________________________, a Participant in the GPU System Companies Master Directors' Benefits Protection Trust (the "Trust"), adopted September 1, 1995 and amended November 7, 1996, pursuant to Section 5.3(b) thereof, hereby request and authorize [Name of Bank], as Trustee thereunder, to institute and prosecute legal proceedings (the "Litigation"), on my behalf, against [Name of GPU System Company] to recover upon my claim against said company for unpaid benefits under [Name of Plan under which claim is asserted]. 53 It is understood that, pursuant to Section 5.3(e) of the Trust Agreement, I may revoke this authorization to prosecute or continue to prosecute such Litigation, at any time, upon written notification to the Trustee in the appropriate form. Dated:_________________ ___________________________ [Name of Participant] ___________________________ ___________________________ ___________________________ [Address & Telephone No.] 54 EXHIBIT F REVOCATION OF TRUSTEE'S AUTHORITY TO MAINTAIN LITIGATION I, _______________________________________________, a Participant in the GPU System Companies Master Directors' Benefits Protection Trust (the "Trust"), adopted September 1, 1995 and amended November 7, 1996, pursuant to Section 5.3(e) thereof, hereby revoke the authorization previously granted by me to [Name of Bank], as Trustee thereunder, to institute and prosecute legal proceedings (the "Litigation), on my behalf, against [Name of GPU System Company] for unpaid Benefits under [Name of Plan under which claim is asserted]. I hereby notify the Trustee that I have appointed and retained [Name Attorney______________] of [Address________ ___________________________________________________________ ______] to represent me and my interests in such Litigation. I understand that the fees and expenses of my attorney in connection with the Litigation or otherwise shall be my sole responsibility and that neither me nor my attorney will be entitled to direct payment for any such fees or expenses out of the Trust fund or any portion thereof. Dated:_________________ ___________________________ [Name of Participant] ___________________________ ___________________________ ___________________________ [Address & Telephone No.] 55 EXHIBIT G Trustee's Fee Schedule [Material to be added, including provision for automatic annual COLA adjustments after a Change in Control.] GPU RABBI TRUST PARTICIPANT INFORMATION NAME ADDRESS SOCIAL SECURITY NUMBER Appell, L. J., 1700 Power Mill Road ###-##-#### Jr. York, PA 17403 Bainton, D. J. 39 West Brother Drive ###-##-#### Greenwich, CT 06830 Black, T. H. 543 Carter Street ###-##-#### New Canaan, CT 06840 Burditt, J. F. P. O. Box 1327 ###-##-#### Manchester Center, VT 05255 Grove, D. L. 5 The Knoll ###-##-#### Armonk, NY 10504 Hagen, T. B. 5727 Grubb Road ###-##-#### Erie, PA 16505 Henderson, 315 Rifle Camp Road ###-##-#### H. F., Jr. West Paterson, NJ 07424 Humphreys, 217 Lasiandra Court ###-##-#### L. L. Richland, WA 99352 Laney, R. V. 24 Trout Farm Road ###-##-#### Duxburn, MD 02332 O'Leary, H. R. 5610 Wisconsin Avenue PH20C ###-##-#### O'Leary, J. Chevy Chase, MD 20815 (deceased) Oswald, R. O. 600 E. Cathedral Road ###-##-#### Oswald, J. W. Apt. J-304 (deceased) Philadelphia, PA 19128 Persson, G. E. 27 Greenfields Drive ###-##-#### Lakewood, NJ 08701 Pietruski, 27 Paddock Lane ###-##-#### J. M. Colts Neck, NJ 07722 56 GPU RABBI TRUST PARTICIPANT INFORMATION NAME ADDRESS SOCIAL SECURITY NUMBER Rein, C. A. 21 East 22nd St. ###-##-#### Apt. 8-B New York, NY 10010 Roedel, P. R. 416 Wheatland Ave. ###-##-#### Shillington, PA 19607 Townsend, J. D. 190 Red Rock Cove Dr. ###-##-#### Sedona, AZ 86351 Trost, C. A. H. 10405 Windsor View Dr. ###-##-#### Potomac, MD 20854 Van Ness, S. C. 503 South Street ###-##-#### Brielle, NJ 08730 Wiley, S. B. Canfield Road ###-##-#### Covenant Sta., NJ 07961 Wilson, W. A. 115 Wilton Woods Ln ###-##-#### Media, PA 19063 Witzig, W. F. 1330 Park Hills Avenue ###-##-#### East State College, PA 16801 Woolf, P. K. 506 Quaker Road ###-##-#### Princeton, NJ 08540 57 EX-10.C 9 EXHIBIT 10C Exhibit 10-C GPU SYSTEM COMPANIES MASTER EXECUTIVES' BENEFITS PROTECTION TRUST As Amended and Restated Effective August 1, 1996 TABLE OF CONTENTS Article Title Page No. ARTICLE 1 Definitions 3 ARTICLE 2 Establishment of the Trusts 9 ARTICLE 3 Contributions and Accounts 11 ARTICLE 4 Payments to Participants and Beneficiaries 18 ARTICLE 5 Legal Defense Fund 27 ARTICLE 6 Insolvency 31 ARTICLE 7 Payments to Company 32 ARTICLE 8 Investment Authority and Disposition of Income 33 ARTICLE 9 General Powers and Duties of Trustee 36 ARTICLE 10 Taxes, Expenses, and Compensation of Trustee 41 ARTICLE 11 Accounting by Trustee 43 ARTICLE 12 Communications 45 ARTICLE 13 Resignation or Removal of Trustee 46 ARTICLE 14 Amendments and Termination 48 ARTICLE 15 Miscellaneous 50 THIS TRUST AGREEMENT, Amended and Restated as of August ___, 1996, by and between GPU, INC., a Pennsylvania corporation (the "Corporation"), JERSEY CENTRAL POWER & LIGHT COMPANY, a New Jersey corporation, METROPOLITAN EDISON COMPANY, a Pennsylvania corporation, PENNSYLVANIA ELECTRIC COMPANY, a Pennsylvania corporation, GPU SERVICE, INC., a Pennsylvania corporation, GPU 1 NUCLEAR, INC., a New Jersey corporation, GPU GENERATION, INC., a Pennsylvania corporation ("Genco"), and GPU INTERNATIONAL, INC., a Delaware Corporation (each such corporation is hereinafter referred to individually as a "Company", and all such corpora- tions are hereinafter referred to collectively as the "Com- panies"), and SUMMIT BANK (formerly UNITED JERSEY BANK), a New Jersey state chartered bank (hereinafter referred to as the "Trustee"). W I T N E S S E T H : WHEREAS each Company has adopted one or more Plans (as hereinafter defined) under which it has incurred or expects to incur liability under the terms of such Plans with respect to Benefits (as hereinafter defined) payable to individuals participating in such Plans; and WHEREAS, pursuant to a Trust Agreement dated as of September 1, 1995 between the Corporation, each of the Companies other than Genco, and the Trustee (the "Prior Agreement"), each of such Companies has established a trust (hereinafter called the "Trust") and has contributed to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency (as hereinafter defined) until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plans; and WHEREAS, Genco wishes to establish a Trust hereunder and to become a party to this Agreement and agrees to be bound by all of its terms and provisions; and 2 WHEREAS, it is the intention of the parties that each Trust established hereunder or under the Prior Agreement shall constitute an unfunded arrangement and shall not affect the status of each of the Plans as unfunded for purposes of those provisions of Title I of the Employment Retirement Income Security Act of 1974 that may apply to such Plan; and WHEREAS, it is the intention of each Company to make contributions to its Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under its Plans; and WHEREAS, the Trustee is not a party to any of the Plans and makes no representations with respect thereto; and WHEREAS, the parties hereto wish to amend and restate the Prior Agreement to permit Genco to become a party hereto and to make certain other changes in the Prior Agreement; NOW, THEREFORE, the Prior Agreement is hereby amended and restated to read in its entirety as follows: ARTICLE 1 Definitions 1.1 As used herein, the following terms shall have the following meanings, unless the context clearly indicates a con- trary meaning: (a) "Agreement" shall mean this instrument, as the same may be amended from time to time as permitted herein. (b) "Applicable Company" shall mean, with respect to any Trust established hereunder, or any Plan, the Company that established such Trust, or that has adopted or maintains such Plan. 3 (c) "Beneficiary", with respect to a Participant, shall mean the person or entity designated by such Participant under a Plan, or such other person or entity with respect to such Participant as may be designated under the terms of such Plan, to receive the Benefits, if any, payable from such Plan following such Participant's death. (d) "Benefits" shall mean those amounts specified in Exhibit B that are payable under a Plan to (or with respect to) a Participant, or, upon his death, to his Beneficiary. (e) "Benefit Valuation Date" shall mean the first day of each calendar year. (f) "Board" shall mean the board of directors of the Corporation. (g) "Change in Control" shall mean the occurrence of any of the following: (1) An acquisition (other than directly from the Corporation) of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); 4 (2) The individuals who, as of August 1, 1996, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Trust, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non- Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the stockholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and 5 (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (g) "Code" shall mean the Internal Revenue Code of 1986 as the same may be amended from time to time. (h) "Insolvent"--A Company shall be considered "Insolvent" for purposes of this Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 6 (i) "Participant" shall mean any person who is or may become entitled to receive Benefits under a Plan and who is included in the list of persons who are to be treated as Participants for purposes of this Agree- ment, as set forth in Exhibit A hereto. (j) "Permitted Investments" shall mean direct obligations of the United States of America or agencies or instrumentalities thereof or obligations uncondition- ally and fully guaranteed as to principal and interest by the United States of America ("Obligations"), and certificates of deposit and bankers' acceptances of a bank organized and existing under the laws of the United States of America or any State thereof that has a combined capital and surplus of at least $100,000,000, all having respective maturities of not more than one year when purchased. The term "Permitted Investments" shall also mean any fund or portfolio maintained by any open-end investment company regis- tered under the Investment Company Act of 1940, the assets of which are invested exclusively in Obligations, certificates of deposit and/or bankers' acceptances of the kind described in the preceding sentence including, without limitation, any such fund or portfolio for which the Trustee or any affiliate of the Trustee serves as investment adviser. (k) "Present Value" shall mean, with respect to any Benefit, the single sum actuarial present value of such Benefit, as determined by an enrolled actuary on the basis of the actuarial assumptions most recently adopted by the Applicable Company for use in connection with this Agreement. Notwithstanding the foregoing, any determination of the Present Value of Benefits to be made hereunder at any time after a Change in Control or during a Threatened Change in Control Period shall be made on the basis of the actuarial assumptions that were used in determining the Present Value of such Benefits as of the most recent Benefit Valuation Date preceding the Change in Control or Threatened Change in Control Period, unless the Applicable Company has notified the Trustee in writing prior to the Change in Control or the Threatened Change in Control Period of its adoption of different actuarial assumptions for use hereunder after the Change in Control or during the Threatened Change in Control Period; provided, however, that if any Plan specifies (either expressly or by reference) the actuarial assumptions that are to be used to calculate the Benefits provided under such Plan, the actuarial assumptions so specified shall be used to determine the Present Value of Benefits under that Plan for purposes of this Agreement. 7 (l) "Plan" or "Plans" shall mean, with respect to any Company, any (or if the context requires, all) of the plans, programs or policies maintained by such Com- pany, and agreements entered into by such Company, that are included in the list set forth in Exhibit B hereto. (m) "Threatened Change in Control" shall mean the occurrence of any of the following events (but no event other than the following events), except as otherwise provided below: Any Person (1) becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation representing fifteen percent (15%) or more of the then- outstanding Common Stock or of the combined voting power of the Corporation's then-outstanding voting securities, or (2) initiates a tender offer or exchange offer to acquire securities of the Corporation representing twenty percent (20%) or more of the then- outstanding Common Stock or of the combined voting power of the Corporation's then-outstanding voting securities, or (3) solicits proxies for the election within any single twelve (12)-month period of three or more directors, whose election or nomination is not approved by a majority of the Incumbent Board then serving as members of the Board, to serve on the Board. Notwithstanding the foregoing, a Threatened Change in Control shall not be deemed to occur pursuant to this Section 1.1(m) solely because of an acquisition or tender offer made or effected in connection with a Non-Control Acquisition. (n) "Threatened Change in Control Period" shall mean the period commencing on the date on which a Threatened Change in Control has occurred and ending (i) on the date on which a Change in Control has occurred, or (ii), if earlier, on whichever of the following dates is applicable: (1) in the case of a Threatened Change in Control described in Section 1.1(m)(1), the date as of which any Person described in Section 1.l(m)(1) ceases to be the Beneficial Owner, directly or indirectly, of securities of the Corporation representing fifteen percent (15%) or more of the Common Stock or of the combined voting power of the Corporation's then-outstanding voting securities, or 8 (2) in the case of a Threatened Change in Control described in Section 1.l(m)(2), the date as of which the tender offer or exchange offer described in Section 1.1(m)(2) is terminated without any securities described therein of the Corporation being purchased thereunder, or (3) in the case of a Threatened Change in Control described in Section 1.l(m)(3), the date as of which any Person described in Section 1.1(m)(3) fails to effect the election within any single twelve (12)-month period of three or more directors, whose election or nomination is not approved by a majority of the Incumbent Board then serving as members of the Board, to serve on the Board. (o) "Valuation Date" shall mean the last business day of each calendar quarter. ARTICLE 2 Establishment of the Trusts 2.1 Each Company hereby establishes with the Trustee, and the Trustee hereby accepts, a Trust consisting of such sums of money and other property acceptable to the Trustee as such Company shall pay or deliver to the Trustee from time to time. All such money and other property, all investments and reinvest- ments made therewith or proceeds thereof and all earnings and profits thereon, less all payments therefrom and charges thereto as authorized herein, are hereinafter referred to as the "Trust Fund" for such Trust. Each Trust Fund shall be held, adminis- tered and disposed of by the Trustee as provided in this Agreement. 2.2 Prior to a Change in Control, each Trust estab- lished hereunder may be revoked, in whole or in part, by the 9 Applicable Company giving to the Trustee written notice of such revocation; provided, however, that no Trust established hereunder may be revoked (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs or (iii) during a Threatened Change in Control Period, any such attempted revocation being null and void. If a Trust is so revoked in its entirety, all of the assets of the Trust (after payment of any unpaid fees and expenses of the Trustee properly chargeable to such Trust) shall be transferred by the Trustee to the Applicable Company or to such other person or entity as the Applicable Company may direct in writing. If a Trust is so revoked in part, the Trustee shall transfer to the Applicable Company such of the assets of the Trust as the Applicable Company shall have specified in its written notice to the Trustee of the partial revocation of such Trust. Upon a Change in Control, each Trust shall become irrevocable. 2.3 Each Trust established hereunder is intended to constitute a "grantor trust", of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, and shall be construed accord- ingly. 2.4 The principal of each Trust, and any earnings thereon, shall be held separate and apart from other funds of the 10 Applicable Company, and shall be used exclusively for the uses and purposes of Participants under such Company's Plans and general creditors of such Company, as herein set forth. Partici- pants and their Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of any Trust. Any rights created under the Plans and this Agreement shall be mere unsecured contractual rights of Participants and their Beneficiaries against the Applicable Company. Any assets held by each Trust will be subject to the claims of the Applicable Company's general creditors under federal and state law in the event of the Applicable Company's Insolvency, as defined in Section 1.1(h) herein. 2.5 Each Trust established hereunder shall be main- tained by the Trustee as a separate trust. However, the assets of any Trust may be commingled with the assets of any other Trust, solely for investment purposes. ARTICLE 3 Contributions and Accounts 3.1 Prior to a Change in Control, each Company may make contributions to its Trust in such amounts, and at such times, as such Company may determine in its sole discretion. Such contributions may be in the form of cash, or such other property as may be determined by the Company and as may be acceptable to the Trustee. 11 3.2 Required Contributions. 3.2.1 Upon the occurrence of a Change in Control, each Company shall be required to make contributions to its Trust as follows: (a) Upon a Change in Control, the Company shall, as soon as possible but in no event later than 30 days following the Change in Control, make an irrevocable contribution to its Trust in an amount that, when added to the value of the Trust Fund for such Trust (exclusive of the value of the Legal Defense Fund, if any, maintained within such Trust Fund) determined as of the most recent Valuation Date preceding such contribution, will equal the sum of (i) the aggregate Present Value of all Benefits accrued for all Participants under all of such Company's Plans determined as of the most recent Benefit Valuation Date preceding the date on which the Change in Control occurred; and (ii) the aggregate Present Value of all other Benefits for all Participants under all of such Company's Plans that accrue as a result of the occurrence of the Change in Control, determined as of the first day of the month coincident with or immediately following the date on which the Change in Control occurred. (b) Within 60 days after each Benefit Valuation Date following the occurrence of a Change in Control, each Company shall make an irrevocable contribution to its Trust in an amount that, when added to the value of the Trust Fund for such Trust (exclusive of the value of the Legal Defense Fund, if 12 any, maintained within such Trust Fund) determined as of the most recent Valuation Date preceding such contribution, will equal the aggregate Present Value of all Benefits accrued for all Participants under all of such Company's Plans determined as of such Benefit Valuation Date. 3.2.2 Upon the occurrence of a Threatened Change in Control, each Company shall be required to make contributions to its Trust as follows: (a) Upon a Threatened Change in Control, the Company shall, as soon as practicable but in no event later than 30 days following the Threatened Change in Control, make a contribution to its Trust in an amount that, when added to the value of the Trust Fund for such Trust (exclusive of the value of the Legal Defense Fund, if any, maintained within such Trust Fund) determined as of the most recent Valuation Date preceding such contribution, will equal the sum of (i) the aggregate Present Value of all Benefits accrued for all Participants under all of such Company's Plans, determined as of the most recent Benefit Valuation Date preceding the date on which the Threatened Change in Control occurred; and (ii) the aggregate Present Value, determined as of the first day of the month coincident with or immediately following the date on which the Threatened Change in Control occurred, of all other Benefits for all Participants under all of such Company's Plans that would have accrued as a result of a Change in Control if such Change in Control had occurred on the date on which the Threatened Change in Control occurs. 13 (b) Within 60 days after each Benefit Valuation Date during a Threatened Change in Control Period, each Company shall make a contribution to its Trust in an amount that, when added to the value of the Trust Fund for such Trust (exclusive of the value of the Legal Defense Fund, if any, maintained within such Trust Fund) determined as of the most recent Valuation Date preceding such contribution, will equal the sum of (i) the aggregate Present Value of all Benefits accrued for all Participants under all of such Company's Plans, determined as of such Benefit Valuation Date and (ii) the aggregate Present Value, determined as of such Benefit Valuation Date, of all other Benefits for all Participants under all of such Company's Plans that would have accrued as a result of a Change in Control, if such Change in Control had occurred on such Benefit Valuation Date. 3.3 Within the Trust Fund for each Trust, the Trustee shall establish and maintain a separate account (hereinafter referred to as a "Plan Account") for each of the Applicable Company's Plans. The Trustee also shall establish within each Plan Account a separate sub-account (hereinafter referred to as a "Participant Account") for each Participant of such Plan. The Trustee shall hold all Plan Accounts and Participant Accounts maintained within the Trust Fund for any Trust as a single consolidated fund. 3.4 With respect to each contribution that is made to a Trust prior to a Change in Control but not during any 14 Threatened Change in Control Period, the amount, or property, so contributed to such Trust shall be allocated by the Trustee to the Plan Accounts, and to the Participant Accounts, maintained within such Trust in such manner as the Applicable Company directs in written instructions delivered by the Applicable Company to the Trustee at the time of the contribution. 3.5 As of each Valuation Date, the Trust Fund for each Trust shall be revalued by the Trustee at its then current fair market value, as determined by the Trustee. The net investment gains and losses of each Trust Fund for each calendar year that ends prior to a Change in Control but not during a Threatened Change in Control shall be allocated by the Trustee, as of the last Valuation Date occurring in such year, among the Plan Accounts and Participant Accounts maintained within such Trust, in such manner as the Applicable Company shall specify in written instructions furnished by it to the Trustee. As of each Valuation Date following the occurrence of a Change in Control, or that falls within a Threatened Change in Control Period, the net investment gains and losses of each Trust Fund for the calendar year ending on such Valuation Date shall be allocated by the Trustee proportionately among the Plan Accounts and Par- ticipant Accounts maintained within such Trust, based on the value of such Accounts as of the immediately preceding Valuation Date. In making the foregoing allocation, the value of Plan Accounts and Participant Accounts in existence on the immediately preceding Valuation Date but not in existence on the current Valuation Date shall be disregarded. 15 3.6 Notwithstanding the provisions of Sections 3.4 and 3.5, as of each Benefit Valuation Date occurring prior to a Change in Control, but not during any Threatened Change in Control Period, the Trustee shall, in accordance with such written instructions as it has received from the Applicable Companies, record adjustments to the balance of each Participant Account maintained within a Plan Account to the extent necessary for such balance to equal the amount determined by multiplying (a) the balance of such Plan Account determined as of the most recent Valuation Date preceding such Benefit Valuation Date, by (b) a fraction the numerator of which is the Present Value of the Benefits accrued for the applicable Participant under the Plan in question, determined as of such Benefit Valuation Date, and the denominator of which is the aggregate Present Value of all of the Benefits accrued for all Participants under such Plan, determined as of such Benefit Valuation Date. 3.7 Any contribution made by a Company to its Trust pursuant to Sections 3.2.1(a), 3.2.1(b), 3.2.2(a) or 3.2.2(b) shall be allocated to the Plan Accounts maintained under such Trust in proportion to the respective amounts by which the aggregate Present Value of all Benefits accrued (or, in the case of contributions made under clause (ii) of Section 3.2.2(a) or 3.2.2(b), deemed to have accrued) for all Participants under each of the Plans in question, determined as of the dates specified in Sections 3.2.1(a), 3.2.1(b), 3.2.2(a) or 3.2.2(b), exceeds the balance of the Plan Account maintained hereunder with respect to each such Plan, determined as of the Valuation Date immediately preceding such contribution. The amount so allocated to any Plan 16 Account shall be further allocated to the Participant Accounts maintained within such Plan Account in proportion to the respective amounts by which the Present Value of the Benefits accrued (or, in the case of contributions made under clause (ii) of Section 3.2.2(a) or 3.2.2(b), deemed to have accrued) for each Participant under the Plan in question, determined as of the dates specified in Sections 3.2.1(a), 3.2.1(b), 3.2.2(a) or 3.2.2(b), exceeds the balance of the Participant Account maintained for such Participant, determined as of the Valuation Date immediately preceding such contribution. 3.8 The determinations of the Present Value of Benefits required to be made hereunder as of any Benefit Valuation Date, or other date, occurring prior to a Change in Control shall be made by an enrolled actuary selected by the Applicable Companies. As soon as practicable after each such determination has been made, each Company shall furnish the Trustee with a schedule setting forth the Present Value so determined of the Benefits accrued (or, if applicable, deemed to have accrued) for each Participant under each of the Company's Plans. The determinations of the Present Value of Benefits required to be made hereunder as of any Benefit Valuation Date, or other date, occurring after a Change in Control shall be made by an enrolled actuary selected by the Trustee. In making any allocation of contributions the Trustee is required to make under Section 3.7, the Trustee shall be entitled to rely, and shall be fully protected in relying, on any written determination of the 17 Present Value of any Benefit furnished to it in accordance with the provisions of this Section 3.8. In making any allocation of net investment gains and losses pursuant to the second sentence of Section 3.5, and in recording any adjustments to the balance of any Participant Account pursuant to Section 3.6, the Trustee shall be entitled to rely, and shall be fully protected in relying, on any written instructions furnished to it by the Applicable Companies. ARTICLE 4 Payments to Participants and Beneficiaries 4.1 Prior to a Change in Control, the Trustee shall make payments from the Trust Fund for any Trust to such Par- ticipants and Beneficiaries, in such manner, at such times, and in such amounts, as the Applicable Company shall direct in written instructions delivered to the Trustee. 4.2 After a Change in Control, the Trustee shall make payments from the Trust Fund of any Trust to Participants and Beneficiaries in accordance with the following provisions: (a) Prior to a Change in Control, each Company shall deliver to the Trustee a schedule ("Payment Schedule") substan- tially in the form annexed hereto as Exhibit C for each Par- ticipant of each Plan whose Benefits under such Plan may be paid from such Company's Trust after a Change in Control. The Payment Schedule shall (i) describe the events that must occur in order for the Participant's Benefits to become payable under the terms of the Plan; 18 (ii) specify the amount of the Participant's Benefits accrued under the Plan, as of the date on which the Payment Schedule is furnished to the Trustee, and provide a formula or such other instructions as will enable the Trustee to determine the amount of the Participant's Benefits as of the time they become payable under the terms of the Plan; (iii) specify the form in which the Participant's Benefits are to be paid, as provided for or available under the Plan; (iv) specify the time of commencement for payment of the Participant's Benefits under the Plan; and (v) specify the address and social security number of the Participant as well as the name, address, social secu- rity number and relation to the Participant of the Participant's Beneficiary. Prior to a Change in Control the Applicable Company may from time to time substitute a new Payment Schedule for, or amend, an existing Payment Schedule by delivering a new or amended Payment Schedule to the Trustee. Upon receipt of such new or amended Payment Schedule, the previous Payment Schedule shall be deemed revoked. Prior to a Change in Control, any Payment Schedule previously filed with the Trustee may be revoked by the Applicable Company by filing written notice of such revocation with the Trustee without delivering a new or amended Payment Schedule to the Trustee. Notwithstanding the foregoing, no Payment Schedule may be amended or revoked after a Change in Control or during a Threatened Change in Control Period; provided, however, that during a Threatened Change in Control, a Payment Schedule with respect to a Participant's Benefits under any Plan may be amended so as to reflect any amendment to the Plan made during such Threatened Change in Control period that has the effect of increasing the amount of the Benefits payable 19 under the Plan with respect to the Participant, or that permits payment of such Benefits to be made in a form, or to commence at a time, more favorable to the Participant or his or her Beneficiary than as provided under the Plan prior to such amendment. Except as otherwise provided herein, after a Change in Control, the Trustee shall make payments with respect to a Participant's Benefits under any Plan only in accordance with the Payment Schedule with respect to such Participant's Benefits under such Plan that is on file with the Trustee, and that has not been revoked, at the time such payments are to be made. (b) Any Participant or Beneficiary seeking to obtain payments from the Trust Fund for any Trust after a Change in Control shall first file with the Trustee a written request for payment in substantially the form annexed hereto as Exhibit D ("Payment Request Form"). In the Payment Request Form so filed, the Participant or Beneficiary shall (i) identify the Plan or Plans under which the Par- ticipant or Beneficiary has become entitled to payment of Benefits; (ii) describe the events that entitle the Participant or Beneficiary to receive payment of Benefits under the terms of the Plan or Plans, and affirm under oath that such events have occurred; (iii) affirm under oath that no amount of the Benefits with respect to which payment from the Trust Fund is sought was previously paid by the Applicable Company; and (iv) provide such information (including, without limitation, information as to the Participant's period of service, compensation and conditions of employment after a Change in Control) as will enable the Trustee to determine the amount of the Benefits that the Participant or Bene- ficiary is entitled to receive in accordance with the Payment Schedules furnished to the Trustee with respect to the Participant's Benefits under the Plan or Plans. 20 In the case of any Beneficiary seeking payments from a Trust Fund, the Beneficiary shall furnish to the Trustee, along with the Payment Request Form, a certified copy of the death certifi- cate of the Participant, an inheritance tax waiver and such other documents as the Trustee may reasonably require, including, with- out limitation, certified copies of letters testamentary. For all purposes under this Agreement, the Trustee may rely, and shall be fully protected in relying, on the information contained in any Payment Request Form (and in any documents accompanying such form) filed with it by any Participant or Beneficiary. (c) As soon as practicable after a Payment Request Form has been filed with it by a Participant or Beneficiary, the Trustee, solely out of the applicable Trust Fund and with no obligation otherwise to make any payments, shall make payments to such Participant or Beneficiary in such manner, and at such times, and in such amounts, as the Trustee shall determine to be payable to such Participant or Beneficiary under the relevant Plan or Plans based on the most recent Payment Schedules applicable to the Participant or Beneficiary that were furnished to the Trustee by the Applicable Company prior to a Change in Control, and on the information contained in the Payment Request Form (and in any documents accompanying such Form) filed by the Participant or Beneficiary. The Trustee is authorized to retain an enrolled actuary to assist it in determining the amount of any Benefits payable to any Participant or Beneficiary pursuant to any Payment Request Form or Payment Schedules filed by or for such Participant or Beneficiary and, in any case in which a 21 Participant or Beneficiary has filed a Payment Request Form with respect to Benefits under any Plan for which an unrevoked Payment Schedule is not on file with the Trustee, to assist it in determining such Participant's or Beneficiaries' entitlement to Benefits under such Plan. For all purposes under this Agreement, the Trustee may rely, and shall be fully protected in relying, on any advice given to it by such actuary as to the amount of Benefits payable hereunder to any Participant or Beneficiary. (d) Following the occurrence of a Change in Control, the Trustee shall make provision for the reporting and with- holding of any federal, state or local taxes that may be required to be withheld with respect to the payment of Benefits to be made from any Trust pursuant to the terms of this Agreement, and shall pay amounts withheld by it to the appropriate taxing authorities or determine that the amounts required to be withheld with respect to such payments have been reported, withheld and paid by the Applicable Company. Prior to a Change in Control, the Trustee shall report and withhold any federal, state or local taxes that may be required to be withheld with respect to any payment of Benefits to be made from any Trust pursuant to Section 4.1, but only to the extent that the Applicable Company has fur- nished to the Trustee, in the written instructions delivered to the Trustee pursuant to Section 4.1 directing it to make such payment, the amount of the federal, state or local taxes required to be withheld with respect to such payment. The Trustee shall be entitled to rely, and shall be fully protected in relying, 22 upon the information so furnished to it as to the amount of taxes to be withheld. 4.3 The entitlement of a Participant or Beneficiary to Benefits under any Plan shall be determined by the Applicable Company or such other party as may have been designated under the Plan, and any claim for such Benefits shall be considered and reviewed under the procedures set out in the Plan. Notwith- standing the foregoing, after a Change in Control, any Participant or Beneficiary for whom any unrevoked Payment Schedule is on file with the Trustee at the time of the Change in Control shall be presumed conclusively, for all purposes of this Agreement, to be entitled to any Benefit that the Trustee deter- mines to be payable to such Participant or Beneficiary on the basis of the information contained in such Payment Schedule and in any Payment Request Form filed by the Participant or Beneficiary; and in such case, the provisions set forth in the immediately preceding sentence shall apply only with respect to any claim by the Participant or Beneficiary for Benefits that are in addition to, or in excess of, the Benefits that the Trustee has so determined to be payable to the Participant or Beneficiary. 4.4 Each payment made from the Trust Fund for any Trust with respect to a Participant's Benefits under any Plan shall be payable only from, and shall be charged against, the Plan Account maintained within such Trust Fund with respect to such Plan and the Participant Account established within such 23 Plan Account for the applicable Participant. Notwithstanding any other provision herein to the contrary, the Trustee shall not make a payment with respect to a Participant's Benefits under any Plan to the extent that the amount of the payment otherwise required to be made exceeds the amount then held in the Plan Account for such Plan or the amount then held in the Participant Account established within such Plan Account for the applicable Participant. If, because of the provisions of this Section 4.4, any amount otherwise required to be paid by the Trustee to a Par- ticipant or Beneficiary with respect to a Participant's Benefits under any Plan cannot be paid by the Trustee, such amount shall be paid to the Participant or Beneficiary by the Applicable Company. 4.5. At such time after a Change in Control as the aggregate amount of the payments made hereunder from the Participant Account maintained within any Plan Account for any Participant shall equal the maximum amount that may be paid from such Participant Account pursuant to the most recent Payment Schedule filed with respect to such Participant's Benefits under the Plan in question, the balance then remaining in such Partici- pant Account shall be allocated and credited, on a pro rata basis, to all other Participant Accounts maintained within such Plan Account, based on the respective values of such other Participant Accounts determined as of the most recent Valuation Date. 24 At such time after a Change in Control as the aggregate amount of the payments made from any Plan Account shall equal the maximum amount that may be paid from such Plan Account pursuant to the most recent Payment Schedules filed with respect to Participants' Benefits under the Plan for which such Plan Account was established, the balance then remaining in such Plan Account shall be allocated and credited, on a pro rata basis, to all other Plan Accounts and Participant Accounts maintained within the same Trust Fund, based on the respective values of such other Plan Accounts and Participant Accounts determined as of the most recent Valuation Date. 4.6 Notwithstanding any other provision of this Agreement to the contrary, if at any time any Trust is finally determined by the Internal Revenue Service (the "IRS") not to be a "grantor trust," with the result that the income of such Trust is not treated as income of the Applicable Company pursuant to Sections 671 through 679 of the Code, such Trust shall immedi- ately terminate and the amounts allocated to each Plan Account and Participant Account within such Trust shall be paid in a cash lump sum as soon as practicable by the Trustee to the Partici- pants for whom such Accounts were maintained. If any Company should receive notice of such final determination from the IRS, such Company shall promptly furnish written notice of such final determination to the Trustee. 25 4.7 Notwithstanding any other provision of this Agreement to the contrary, if the IRS should finally determine that any amounts held in any Trust are includible in the gross income of any Participant or Beneficiary prior to payment of such amounts from the Trust, the Trustee shall, as soon as prac- ticable, pay such amounts to such Participant or Beneficiary from such Trust. For purposes of this Section 4.7, the Trustee shall be entitled to rely on an affidavit by a Participant or Beneficiary to the effect that such a determination has occurred. 4.8 Each Company may make payment of Benefits directly to Participants or their Beneficiaries as they become due under the terms of the Applicable Plans. After a Change in Control, a Company that decides to make payment of Benefits directly shall notify the Trustee in writing of its decision prior to the time amounts are payable to the Participants or their Beneficiaries. In addition, each Company shall remain primarily liable to pay all of the Benefits provided for under its Plans, to the extent such Benefits are not payable from such Company's Trust pursuant to this Agreement. Accordingly, if the principal of the Applicable Company's Trust, and any earnings thereon, are not sufficient to make payments of Benefits in accordance with the terms of such Company's Plans, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Applicable Company in writing where principal and earnings of the Company's Trust are not sufficient. 26 ARTICLE 5 Legal Defense Fund 5.1 On the written direction of a Company, the Trustee shall establish within the Trust Fund for such Company's Trust a separate fund, hereinafter referred to as a "Legal Defense Fund". A Company's Legal Defense Fund shall consist of such portions of its contributions to its Trust as the Company shall specify in writing at the time of contribution, together with all income, gains and losses and proceeds from the investment, reinvestment and sale thereof, less all payments therefrom and expenses charged thereto in accordance with the provisions of this Article 5. Subject to Article 6, a Company's Legal Defense Fund shall be held and administered by the Trustee exclusively for the purpose of defraying the costs and expenses incurred by the Trustee in performing its duties under Sections 5.3 and 5.4. 5.2 A Company's Legal Defense Fund shall be maintained and administered as a separate segregated account, provided, however, that the assets of any Legal Defense Fund may be commingled with all other assets of the same Trust, and with the assets of any other Trust, solely for investment purposes. 5.3 If, at any time after a Change in Control, a Participant or Beneficiary notifies the Trustee in writing that a Company has refused to pay a claim asserted by such Participant or Beneficiary under any of such Company's Plans, the Trustee shall promptly review such claim and determine whether it has any basis in law and fact. If the Trustee determines that the claim has no basis in law and fact, the Trustee shall notify the Participant or Beneficiary of such determination, and thereafter 27 shall take no further action with respect to the claim. If the Trustee determines that there is a basis in law and fact for the Participant's or Beneficiary's claim, the Trustee shall take the following actions to assist the Participant or Beneficiary (here- after referred to as the "Claimant") to recover on such claim: (a) The Trustee shall promptly attempt to negotiate with the Applicable Company to obtain payment, settlement or other disposition of the claim, subject to the Claimant's consent. (b) If (i) negotiations fail after 60 days of their commencement to result in a payment, settlement or other disposition acceptable to the Claimant, (ii) the Trustee at any time reasonably believes that further negotiations would not be in the Claimant's best interest or (iii) any applicable statute of limitations would otherwise expire within 60 days, the Trustee shall advise the Claimant of such fact. Thereupon, the Claimant may, by filing with the Trustee a written authorization in substantially the form attached hereto as Exhibit E, direct the Trustee to institute and maintain legal proceedings (the "Litigation") against the Applicable Company to recover on the claim on behalf of the Claimant. (c) The Trustee shall direct the course of any Litiga- tion and shall keep the Claimant informed of the progress thereof at such intervals as the Trustee deems appropriate, but no less frequently than quarterly. The Trustee shall have the discretion to determine the form and nature that any Litigation shall take, and the procedural rules and laws applicable to such Litigation shall supersede any inconsistent provision of this Agreement. (d) If the Claimant directs in writing that the Liti- gation be settled or discontinued, the Trustee shall take all appropriate action to follow such direction, provided that such written direction specifies the terms and conditions of the settlement or discontinuance and provided further that the Claimant, if requested to do so by the Trustee, executes and delivers to the Trustee a document in a form acceptable to the Trustee releasing the Trustee and holding it harmless from any liability resulting from its following such direction. If the Claimant refuses to consent to a settlement or other disposition of the Litigation on terms recommended in writing by the Trustee, the Trustee may proceed, in its sole and absolute discretion, to take such action as it deems appropriate in the Litigation, including settlement or discontinuance of the Litigation; provided, however, that the Trustee shall afford the Claimant at least 14 days' advance notice in writing of any decision by the Trustee to settle or otherwise discontinue the Litigation. 28 (e) A Claimant may at any time revoke the authoriza- tion of the Trustee to continue any Litigation on his behalf by delivering to the Trustee a written revocation in substantially the form attached as Exhibit F hereto, and notifying the Trustee in writing that the Claimant has appointed his own counsel (whose fees and expenses shall not be paid from any Legal Defense Fund) to represent the Claimant in the Litigation in lieu of counsel retained by the Trustee. Upon the Trustee's receipt of such revocation and notice, the Trustee shall have no obligation to proceed further on behalf of the Claimant in the Litigation, or to pay any costs or expenses incurred in the Litigation after the date on which such revocation and notice is delivered to the Trustee. (f) The Trustee shall be empowered to retain counsel and other appropriate experts, including actuaries and accountants, to assist it in making any determination under this Section 5.3, in determining whether to pursue, settle or discontinue any Litigation, and to prosecute and maintain any such Litigation on behalf of any Claimant. Notwithstanding the foregoing, each Company, prior to a Change in Control, may designate in writing the counsel to be retained by the Trustee after a Change in Control to assist in enforcing the rights of Claimants under such Company's Plans in accordance with the provisions of this Section 5.3. If the counsel so designated declines to provide representation, or if such counsel's representation would involve a conflict of interest with the Trustee, or if the Trustee is not satisfied with the quality of representation provided, the Trustee may dismiss such counsel and engage another qualified law firm for this purpose; provided, however, that any law firm so engaged may not be the same law firm that represents any Company after a Change in Control. No Company may dismiss or engage such counsel, or cause the Trustee to engage or dismiss such counsel, after a Change in Control. (g) All costs and expenses incurred by the Trustee in connection with the performance of its duties under this Section 5.3, including, without limitation, the payment of reasonable fees, costs and disbursements of any counsel, actuaries, accountants or other experts retained by the Trustee pursuant to Section 5.3(f), shall be charged to and paid from the Applicable Company's Legal Defense Fund. (h) Notwithstanding any provision herein to the con- trary, the Trustee shall be required to act under this Section 5.3, including, without limitation, instituting or continuing any Litigation, only to the extent there are sufficient amounts available in the Applicable Company's Legal Defense Fund to defray the costs and expenses the Trustee reasonably anticipates will be incurred in connection with such action. If, at any time after a Claimant has filed a written notice with the Trustee under Section 5.3(a) the Trustee determines that there will not be sufficient amounts in the Applicable Company's Legal Defense Fund to defray such costs and expenses, the Trustee shall 29 promptly advise the Claimant of such fact. Unless within 30 days after it has given such notice to the Claimant the Trustee receives from the Claimant assurances, in such form as may be satisfactory to the Trustee, that any costs and expenses in excess of amounts available in the Applicable Company's Legal Defense Fund will be paid by the Claimant, the Trustee shall have no obligation to take any further action on behalf of the Claimant pursuant to this Section 5.3; and, if a Litigation on behalf of the Claimant is then pending, the Trustee may discontinue such Litigation on such terms and conditions as it deems appropriate in its sole discretion. 5.4. If, at any time after a Change in Control or during a Threatened Change in Control Period, legal proceedings are brought against the Trustee by a Company or other party seeking to invalidate any of the provisions of this Agreement as they relate to a Company's Trust, or seeking to enjoin the Trustee from paying any amounts from any Trust or from taking any other action otherwise required or permitted to be taken by the Trustee under this Agreement with respect to any Trust, the Trustee shall take all steps that may be necessary in such pro- ceeding to uphold the validity and enforceability of the provi- sions of this Agreement as they relate to such Trust. All costs and expenses incurred by the Trustee in connection with any such proceeding (including, without limitation, the payment of reason- able fees, costs and disbursements of any counsel, actuaries, accountants or other experts retained by the Trustee in connec- tion with such proceeding) shall be charged to and paid from the Applicable Company's Legal Defense Fund. Any costs and expenses so incurred by the Trustee in excess of amounts available in the Applicable Company's Legal Defense Fund shall be charged to and paid from the other assets of such Company's Trust. Any such excess costs and expenses so charged shall be allocated to the 30 Plan Accounts maintained within such Trust, and to the Participant Accounts maintained within such Plan Accounts, on a pro rata basis. 5.5 Each Company's Legal Defense Fund shall continue to be held and administered by the Trustee for the purposes described in Section 5.1 until such time as all Benefits to which all Participants are entitled under all of such Company's Plans shall have been paid in full to such Participants or their Beneficiaries. Any balance then remaining in a Company's Legal Defense Fund shall be distributed to such Company. ARTICLE 6 Insolvency 6.1 The Trustee shall cease making payment hereunder of Benefits payable to Participants and their Beneficiaries pur- suant to a Company's Plans if the Company is Insolvent. 6.2 At all times during the continuance of each Trust, as provided in Section 2.4 hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Applicable Company under federal and state law as set forth below: (a) The Board of Directors and Chief Executive Officer of each Company shall have the duty to inform the Trustee in writing of such Company's Insolvency. If a person claiming to be a creditor of a Company alleges in writing to the Trustee that such Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue making payment from such Company's Trust to Participants and Beneficiaries. (b) Unless the Trustee has actual knowledge of a Company's Insolvency, or has received notice from a Company or a person claiming to be a creditor of such Company alleging that the Company is Insolvent, the Trustee shall have no duty to 31 inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning a Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (c) If at any time the Trustee has determined that a Company is Insolvent, the Trustee shall discontinue making payments from such Company's Trust to Participants and their Beneficiaries and shall hold the assets of such Trust for the benefit of the Company's general creditors. Nothing in this Agreement shall in any way diminish any rights of Participants or their Beneficiaries to pursue their rights as general creditors of the Applicable Company with respect to Benefits due under the Company's Plans or otherwise. (d) The Trustee shall resume making payment from a Company's Trust of Benefits to Participants or their Beneficiaries in accordance with Article 4 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent, or is no longer Insolvent. 6.3 Provided that there are sufficient assets, if the Trustee discontinues the payment of Benefits from any Trust pur- suant to Section 6.2 hereof and subsequently resumes such pay- ments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Participants or their Beneficiaries under the terms of the Applicable Company's Plan for the period of such discontinuance, less the aggregate amount of any payments made to Participants or their Beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. ARTICLE 7 Payments to Company 7.1 Prior to a Change in Control (but not during a Threatened Change in Control Period), a Company may, by written notice to the Trustee, direct the Trustee to pay to such Company, 32 out of the Trust Fund for such Company's Trust, such amount as is specified in the notice. Any such notice shall specify the Plan Accounts and the Participant Accounts, if any, which shall be debited with respect to such payment. If the amount that would remain in the Trust Fund after any such payment would be less than the unpaid fees and expenses of the Trustee properly chargeable to such Trust Fund, the Trustee may deduct such fees and expenses from the payment that otherwise would be made to the Company. 7.2 Except as provided in Article 6 hereof, during such time as the Trust is irrevocable, the Applicable Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of Benefits have been made to Participants and their Beneficiaries pursuant to the terms of the Company's Plans. ARTICLE 8 Investment Authority and Disposition of Income 8.1 Except as otherwise provided in Sections 8.2, 8.4, and 8.5, the Trustee, prior to a Change in Control, shall invest and reinvest the assets of each Trust, in its sole discretion, in such investments as may be permitted in accordance with any written investment guidelines that may be delivered to the Trustee from time to time by the Applicable Company and that are acceptable to the Trustee or, at any time when no such investment guidelines are in effect, in Permitted Investments. 8.2 Prior to a Change in Control, the Applicable Company may in its sole discretion appoint an investment manager 33 to manage the investment of any part or all of the Trust Fund for any Trust. The Applicable Company shall promptly inform the Trustee in writing of any such appointment, shall furnish the Trustee with a copy of the instrument pursuant to which any investment manager is so appointed, and shall inform the Trustee in writing as to the specific portions of the Trust Fund for its Trust that will be subject to the management of such investment manager. During the term of any such appointment, the investment manager shall have the sole responsibility for the investment and reinvestment of that portion of any Trust Fund subject to its investment management, and the Trustee shall have no responsibility for, or liability with respect to, the investment of such portion of such Trust Fund. In exercising the powers granted to it hereunder, the Trustee shall follow the directions of any investment manager with respect to the portion of any Trust Fund subject to manage- ment by such investment manager. All directions given by an investment manager to the Trustee shall be in writing, signed by an officer (or a partner) of the investment manager, or by such other person or persons as may be designated by an officer (or a partner) of the investment manager. The investment manager may directly place orders for the purchase or sale of securities, subject to such conditions as may be approved by the Applicable Company in authorizing the investment manager to effect transac- tions directly with respect to the portion of the Trust Fund for any Trust subject to its management, provided that the Trustee shall nevertheless retain custody of the assets comprising such portion of the Trust Fund. 34 The Applicable Company, by written notice to the Trustee, may at any time terminate its appointment of any invest- ment manager. In such event, the Applicable Company shall either appoint a successor investment manager for the portion of the Trust Fund in question, or direct that such portion of the Trust Fund thereafter be invested and reinvested by the Trustee in accordance with the provisions of Section 8.1. Until receipt of such written notice, the Trustee shall be fully protected in relying upon the most recent prior written notice of appointment of an investment manager. 8.3 After a Change in Control, the Trustee shall have exclusive authority and discretion to manage and control the investment and reinvestment of the Trust Fund for each Trust; provided, however, that the Trust Fund for each Trust shall be so invested and reinvested only in Permitted Investments. 8.4 In no event may the assets of any Trust be invested in securities (including stock or rights to acquire stock) or obligations issued by any Company, other than a de minimis amount held in common investment vehicles in which the Trustee invests. All rights associated with assets of each Trust shall be exercised by the Trustee or an Investment Manager appointed under Section 8.2, and shall in no event be exercisable by or rest with Participants. 8.5 During the term of each Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. 35 ARTICLE 9 General Powers and Duties of Trustee 9.1 In addition to the other powers granted to it under this Agreement, the Trustee shall have the following admin- istrative powers and authority with respect to the property com- prising the Trust Fund for each Trust: (a) To sell, exchange or transfer any such property at public or private sale for cash or on credit and grant options for the purchase or exchange thereof, including call options for property held in the Trust Fund and put options for the purchase of such property, including, without limitation, at any time to sell any asset other than cash held in the Trust Fund to pay Benefits if there is not sufficient cash in the Trust Fund to pay Benefits. (b) To participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to any such property, and to consent to or oppose any such plan or any action thereunder, or any contract, lease, mortgage, purchase, sale or other action by any corporation or other entity. (c) To deposit any such property with any protective, reorganization or similar committee; to delegate discretionary power to any such committee; and to pay part of the expenses and compensation of any such committee and any assessments levied with respect to any property so deposited. (d) To exercise any conversion privilege or subscrip- tion right available in connection with any such property; to oppose or to consent to the reorganization, consolidation, merger or readjustment of the finances of any corporation, company or association, or to the sale, mortgage, pledge or lease of the property of any corporation, company or association of any of the securities of which may at any time be held in the Trust Fund and to do any act with reference thereto, including the exercise of options, the making of agreements or subscriptions and the payment of expenses, assessments or subscriptions, which may be deemed necessary or advisable in connection therewith, and to hold and retain any securities or other property which it may so acquire. (e) To commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings; to settle, compromise or submit to arbitration, any claims, debts or damages, due or owing to or from the Trust. 36 (f) To exercise, personally or by general or limited power of attorney, any right, including the right to vote, appurtenant to any securities or other such property. (g) To borrow money from any lender in such amounts and upon such terms and conditions as shall be deemed advisable or proper to carry out the purposes of the Trust and to pledge any securities or other property for the repayment of any such loan. (h) To engage any legal counsel, including (except after the occurrence of a Change in Control) counsel to any Company, any enrolled actuary, any accountant or any other suitable agents, to consult with such counsel, enrolled actuary, accountant or agents with respect to the construction hereof, the duties of the Trustee hereunder, the transactions contemplated by this Agreement or any act which the Trustee proposes to take or omit, to rely upon the advice of such counsel, enrolled actuary, accountant or agents, and to pay its reasonable fees, expenses and compensation from the Trust Fund. (i) To register any securities held by it in its own name or in the name of any custodian of such property or of its nominee, including the nominee of any system for the central handling of securities, with or without the addition of words indicating that such securities are held in a fiduciary capacity, to deposit or arrange for the deposit of any such securities with such a system and to hold any securities in bearer form; provided, however, that no such holding shall relieve the Trustee of its responsibility for the safe custody and disposition of the Trust Fund in accordance with the provisions of this Agreement, the Trustee's books and records shall at all times show that such property is part of the Trust Fund, and the Trustee shall be absolutely liable for any loss occasioned by the acts of its nominee or nominees with respect to securities registered in the name of the nominee or nominees. (j) To make, execute and deliver, as Trustee, any and all deeds, leases, notes, bonds, guarantees, mortgages, conveyances, contracts, waivers, releases or other instruments in writing necessary or proper for the accomplishment of any of the powers granted herein. (k) To transfer assets of the Trust Fund to a successor trustee as provided in Section 13.4 hereof. (l) To exercise, generally, any of the powers which an individual owner might exercise in connection with property either real, personal or mixed held in the Trust Fund, and to do all other acts that the Trustee may deem necessary or proper to carry out any of the powers granted to it hereunder or that otherwise may be in the best interests of the Trust Fund. 37 (m) To hold any portion of the Trust Fund in cash pending investment, or for the payment of expenses and Benefits, without liability for interest. (n) To vote personally or by proxy and to delegate power and discretion over such proxy on account of securities held in the Trust Fund. (o) To hold assets in time or demand deposits (includ- ing deposits with the Trustee in its individual capacity that pay a reasonable rate of interest). (p) To invest and reinvest all or any specified por- tion of any Trust Fund through the medium of any common, collective, or commingled trust fund that has been or may hereafter be established and maintained by the Trustee. (q) To invest in mutual funds registered with the Securities Exchange Commission under the Investment Company Act of 1940. The Trustee also shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an insurance policy is held as an asset of any Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor trustee, or to loan to any person the proceeds of any borrowing against such policy. Prior to a Change in Control, the Trustee shall exer- cise the powers referred to in Section 9.1(h) only as directed by the Applicable Company; and, with respect to the portion of any Trust Fund for which an investment manager has been appointed under Section 8.2, the Trustee shall exercise any power referred to in this Section 9.1, as it relates to the investment manage- ment of such portion of the Trust Fund, only as directed by such 38 investment manager. After a Change in Control, the Trustee may exercise such powers in its sole and absolute discretion, except as otherwise provided in Article 8. Notwithstanding any powers granted to the Trustee pur- suant to this Agreement or to applicable law, the Trustee shall not have any power that could give any Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code. 9.2 After a Change in Control, the Trustee shall, subject to Article 6 hereof, discharge its duties under this Agreement solely in the interest of the beneficiaries of each Trust and (i) for the exclusive purpose of providing Benefits to such beneficiaries and defraying reasonable expenses of administering such Trust; (ii) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and (iii) by diversifying the investments of the Trust Fund for each Trust so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. 9.3 The Trustee shall not be required to give any bond or any other security for the faithful performance of its duties under this Agreement, except as required by law. 9.4 Except as otherwise expressly provided herein, the Trustee shall not be responsible in any respect for administering 39 any Plan; nor shall the Trustee be responsible for the adequacy of the Trust Fund for any Trust to meet and discharge all pay- ments and liabilities under any Plan. 9.5 The Trustee shall be under no duties whatsoever except such duties as are specifically set forth as such in this Agreement, and no implied covenant or obligation shall be read into this Agreement against the Trustee. Except as otherwise provided in Article 5, the Trustee shall not be required to take any action toward the execution or performance of any Trust created hereunder or to prosecute or defend any suit or claim in respect thereof, unless indemnified to its satisfaction against loss, liability, and reasonable costs and expenses. The Trustee shall be under no liability or obligation to anyone with respect to any failure on the part of any Company to perform any of its obligations under any Plan or under this Agreement. 9.6 The Applicable Company shall pay and shall pro- tect, indemnify and save harmless the Trustee and its officers, directors or trustees, employees and agents from and against any and all losses, liabilities (including liabilities for penal- ties), actions, suits, judgments, demands, damages, reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) of any nature arising from or relating to any action or failure to act by the Trustee, its officers, directors or trustees, employees and agents with respect to any Trust, or arising from or relating to the transactions contemplated by this Agreement that pertain to or affect such Trust, except to the extent that any such loss, 40 liability, action, suit, demand, damage, cost or expense is the result of the negligence or willful misconduct of the Trustee, its officers, directors or trustees, employees or agents. If the Trustee shall become entitled to indemnification by any Company pursuant to this Section 9.6 and such Company fails to provide such indemnification to the Trustee within 30 days of the Company's receipt of a written request from the Trustee for such indemnification, the Trustee may apply assets of such Company's Trust in full satisfaction of the Company's obli- gation to make such indemnification. Promptly after any assets of any Trust are so applied, the Trustee shall institute legal proceedings on behalf of the Trust to recover from the Applicable Company an amount equal to the amount of any Trust assets so applied. ARTICLE 10 Taxes, Expenses, and Compensation of Trustee 10.1 Each Company shall pay any federal, state, local or other taxes imposed or levied with respect to the corpus and/or income of its Trust or any part thereof under existing or future laws and such Company in its discretion, or the Trustee in its discretion, may contest the validity or amount of any tax, assessment, claim or demand respecting such Trust or any part thereof. 10.2 Each Company shall pay to the Trustee its allocable share of the compensation that is payable to the Trustee for its services hereunder pursuant to the schedule of 41 fees annexed hereto as Exhibit G. Each Company shall also pay its allocable share of the reasonable and necessary expenses incurred by the Trustee in the performance of its duties under this Agreement, including reasonable fees of any counsel, actu- ary, accountant or other agent engaged by the Trustee pursuant to this Agreement. Any such compensation or expenses shall be allo- cated among the Companies as follows: in the case of any such compensation that is specifically chargeable to, or any such expenses that were specifically incurred with respect to, a par- ticular Trust, the amount of such compensation or expenses shall be allocated solely to the Applicable Company; in the case of any such compensation that is not specifically chargeable to, or any such expenses that were not specifically incurred with respect to, a particular Trust, the amount of such compensation or expenses shall be allocated to the Companies in proportion to the respective values of the Trust Funds for the Companies' Trusts as of the Valuation Date immediately preceding the date as of which the Trustee bills the Companies for such compensation or expenses. Each Company's allocable share of such compensation and expenses shall be charged against and paid from the Trust Fund for such Company's Trust, to the extent not paid by such Company within 45 days after the date on which the Trustee bills the Company for such compensation and expenses. Any amount so charged against and paid from the Trust Fund for any Company's Trust shall be further allocated to and charged against the Plan Accounts and Participant Accounts maintained within such Trust (a) in such manner as the Applicable Company directs in written 42 instructions delivered by it to the Trustee, in the case of any amount so charged and paid prior to a Change in Control; and (b) in proportion to the respective balances of such Accounts as determined as of the most recent Valuation Date, in the case of any amount so charged and paid after a Change in Control. ARTICLE 11 Accounting by Trustee 11.1 For each Trust, the Trustee shall keep accurate and detailed accounts of all its investments, receipts, and disbursements under this Agreement. Such person or persons as the Applicable Company shall designate shall be allowed to inspect the books of account relating to such Company's Trust upon request at any reasonable time during the business hours of the Trustee. 11.2 Within 90 days after the close of each calendar year, the Trustee shall transmit to each Company, and certify the accuracy of, a written statement of the assets and liabilities of the Trust Fund for such Company's Trust at the close of that year, showing the current value of each asset at that date, and a written account of all the Trustee's transactions relating to such Trust Fund during the period from the last previous accounting to the close of that year. For the purposes of this Section 11.2, the date of the Trustee's resignation or removal as provided in Article 13 hereof shall be deemed to be the close of a calendar year. 43 11.3 Unless a Company shall have filed with the Trustee written exceptions or objections to any such statement and account within 90 days after receipt thereof, such Company shall be deemed to have approved such statement and account; and in such case or upon the written approval by such Company of any such statement and account, the Trustee shall be forever released and discharged with respect to all matters and things embraced in such statement and account as though it had been settled by decree of a court of competent jurisdiction in an action or pro- ceeding to which the Company and all persons having any benefi- cial interest in its Trust were parties. 11.4 Nothing contained in this Agreement or in any Plan shall deprive the Trustee of the right to have a judicial settlement of its accounts with respect to any Trust. In any proceeding for a judicial settlement of the Trustee's accounts or for instructions in connection with any Trust, the only other necessary party thereto in addition to the Trustee shall be the Applicable Company. If the Trustee so elects, it may bring in as a party or parties defendant any other person or persons. No person interested in any Trust, other than the Applicable Company, shall have a right to compel an accounting, judicial or otherwise, by the Trustee, and each such person shall be bound by all accounting by the Trustee to such Company, as herein pro- vided, as if the account had been settled by decree of a court of competent jurisdiction in an action or proceeding to which such person was a party. 44 ARTICLE 12 Communications 12.1 With respect to any Trust, the Trustee shall be fully protected in relying upon any written notice, instruction, direction or other communication signed by an officer of the Applicable Company. Each Company from time to time shall furnish the Trustee with the names and specimen signatures of the offi- cers of the Company authorized to act or give directions here- under and shall promptly notify the Trustee of the termination of office of any such officer of the Company and the appointment of a successor thereto. Until notified in writing to the contrary, the Trustee shall be fully protected in relying upon the most recent list of the officers of the Company furnished to it by the Company. 12.2 Any action required by any provision of this Agreement to be taken by the board of directors of a Company shall be evidenced by a resolution of such board of directors certified to the Trustee by the Secretary or an Assistant Secre- tary of the Company under its corporate seal, and the Trustee shall be fully protected in relying upon any resolution so certi- fied to it. Unless other evidence with respect thereto has been specifically prescribed in this Agreement, any other action of a Company under any provision of this Agreement, including any approval of or exceptions to the Trustee's accounts, shall be evidenced by a certificate signed by an officer of the Company, and the Trustee shall be fully protected in relying upon such certificate. The Trustee may accept a certificate signed by an authorized officer of a Company as proof of any fact or matter 45 that it deems necessary or desirable to have established in the administration of such Company's Trust (unless other evidence of such fact or matter is expressly prescribed herein) and the Trustee shall be fully protected in relying upon the statements in the certificate. 12.3 The Trustee shall be entitled conclusively to rely upon any written notice, instruction, direction, certificate or other communication believed by it to be genuine and to be signed by the proper person or persons, and the Trustee shall be under no duty to make investigation or inquiry as to the truth or accuracy of any statement contained therein. 12.4 Until notice be given to the contrary, communica- tions to the Trustee shall be sent to it at its office at 210 Main Street, Hackensack, New Jersey 07601, Attention: Corporate Agency Administration, Investment Management Division; and commu- nications to any Company shall be sent to it c/o GPU Service Corporation, 100 Interpace Parkway, Parsippany, New Jersey 07054-1149, Attention: Treasurer. ARTICLE 13 Resignation or Removal of Trustee 13.1 The Trustee may resign as trustee of any Trust at any time by written notice to the Applicable Company, which resignation shall be effective 60 days after the Company's receipt of such notice unless the Company and the Trustee agree otherwise. The Trustee may be removed as trustee of any Trust by action of the board of directors of the Applicable Company, at any time upon 60 days' written notice to the Trustee, or upon 46 shorter notice if acceptable to the Trustee. In the event it resigns or is removed, the Trustee shall have a right to have its accounts settled as provided in Article 11 hereof. 13.2 Notwithstanding the provisions of Section 13.1, the Trustee may not be removed as trustee of any Trust after a Change in Control or during a Threatened Change in Control Period without the written consent of at least two-thirds in number of the Participants who are, or who may become, entitled to receive payments from such Trust. The Applicable Company shall furnish the Trustee with evidence to establish that such majority in number of such Participants has granted written consent to such removal. 13.3 If the Trustee resigns or is removed as trustee of any Trust, a successor shall be appointed by the Applicable Company, by action of its board of directors, by the effective date of such resignation or removal. Any successor trustee so appointed shall be a bank as defined under the Investment Advisers Act of 1940, having a net worth in excess of $100,000,000 or having assets in excess of $2,000,000,000. After a Change in Control or during a Threatened Change in Control Period, such appointment of a successor trustee shall be approved in writing by at least two-thirds in number of the Participants who are or may become entitled to receive payments from such Trust. Notwithstanding the foregoing, if no such appointment of a successor trustee has been made by the effective date of such resignation or removal, the Trustee may apply to a court of competent jurisdiction for appointment of a successor trustee or for instructions. All expenses of the Trustee in connection with 47 such proceeding shall be allowed as administrative expenses of the Trust and shall be paid by the Applicable Company. 13.4 Each successor trustee shall have the powers and duties conferred upon the Trustee in this Agreement, and the term "Trustee" as used in this Agreement, except where the context otherwise requires, shall be deemed to include any successor trustee. Upon designation or appointment of a successor trustee for any Trust, the Trustee shall transfer and deliver the Trust Fund for such Trust to the successor trustee, reserving such sums as the Trustee shall deem necessary to defray its expenses in settling its accounts with respect to such Trust, to pay any of its compensation with respect to such Trust that is due and unpaid, and to discharge any obligation of such Trust for which the Trustee may be liable. If the sums so reserved are not sufficient for these purposes, the Trustee shall be entitled to recover the amount of any deficiency from either the Applicable Company or the successor trustee, or both. When the Trust Fund for such Trust shall have been transferred and delivered to the successor trustee and the accounts of the Trustee for such Trust have been settled as provided in Article 11 hereof, the Trustee shall be released and discharged from all further accountability or liability for the Trust Fund for such Trust and shall not be responsible in any way for the further disposition of such Trust Fund or any part thereof. ARTICLE 14 Amendments and Termination 14.1 Subject to Section 14.2, any or all of the provi- sions of this Agreement and any Exhibits annexed hereto, as they 48 relate to any Company's Trust, may be amended at any time, with- out the consent of any Participant or Beneficiary, by a written instrument of amendment, duly executed by the Applicable Company and the Trustee. Notwithstanding the foregoing, no such amend- ment shall conflict with the terms of the Applicable Company's Plans or shall make the Applicable Company's Trust revocable after it has become irrevocable in accordance with Section 2.2 hereof. 14.2 No amendment may be made to delete a Participant from Exhibit A or to delete a Plan from Exhibit B and no other provision of this Agreement may be amended (i) during a Threatened Change in Control Period, (ii) after a Change in Control, (iii) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control or (iv) otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs unless in any such case the written consent of at least two-thirds in number of the Participants who are or may become entitled to payments from each Trust affected by such amendment is obtained, in which case such amendment may be made. The Trustee may request that the Applicable Company or Companies furnish evidence to establish that at least two-thirds of the Participants have granted written consent to such an amendment. 14.3 Unless sooner revoked in accordance with Section 2.2 hereof, each Trust shall terminate on the date on which Participants and their Beneficiaries are no longer entitled to receive Benefits pursuant to the terms of the Applicable 49 Company's Plans. Upon termination of any Trust, any assets remaining in the Trust Fund for such Trust shall be paid by the Trustee to the Applicable Company. ARTICLE 15 Miscellaneous 15.1 Any provision of this Agreement prohibited by law shall be ineffective to the extent of any such prohibition, with- out invalidating the remaining provisions hereof. 15.2 Benefits payable to Participants and their Beneficiaries under this Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encum- bered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 15.3 This Agreement shall be governed by, and shall be construed in accordance with, and each Trust hereby created shall be administered in accordance with, the laws of the State of New Jersey. 15.4 The titles to Articles of this Agreement are placed herein for convenience of reference only, and this Agree- ment is not to be construed by reference thereto. 15.5 This Agreement shall bind and inure to the bene- fit of the successors and assigns of each Company and the Trustee, respectively, and all Participants and Beneficiaries under the Companies' Plans. 15.6 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute but one instrument, which may be sufficiently evidenced by any counterpart. 50 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names by their duly authorized officers under their corporate seals as of the day and year first above written. GPU, INC. GPU SERVICE, INC. GPU GENERATION, INC. ENERGY INITIATIVES, INC. By:_________________________________ J. R. Leva, Chairman and Chief Executive Officer ATTEST: __________________________ JERSEY CENTRAL POWER & LIGHT COMPANY METROPOLITAN EDISON COMPANY PENNSYLVANIA ELECTRIC COMPANY By:_________________________________ J. R. Leva, Chairman of the Board and Chief Executive Officer ATTEST: _________________________ GPU NUCLEAR, INC. By:_________________________________ T.G. Broughton, President and Chief Executive Officer ATTEST: __________________________ 51 GPU INTERNATIONAL, INC. By:_________________________________ B. L. Levy, President and Chief Executive Officer ATTEST: ___________________________ Summit Bank, Trustee By: _________________________________ ATTEST: __________________________ 52 Exhibit A List of Participants Company Participants Jersey Central Power & Light Company Dennis P. Baldassari Metropolitan Edison Company Fred D. Hafer Pennsylvania Electric Company Robert L. Wise GPU Service, Inc. Robert C. Arnold Verner M. Condon (Retired) Herman Dieckamp (Retired) F. Allen Donofrio John G. Graham Ira H. Jolles William G. Kuhns (Retired) James R. Leva James B. Liberman (Retired) Philip C. Mezey Hazel R. O'Leary (Retired) GPU Nuclear, Inc. Philip R. Clark Thomas G. Broughton GPU International, Inc. Bruce L. Levy 53 Exhibit B Covered Plans and Benefits Set forth below is a list, for each Company, of the plans, programs, policies or agreements that are to be treated as "Plans", and the amounts payable under the Plans that are to be treated as "Benefits", for purposes of the annexed Agreement. Jersey Central Power & Light Company 1. The severance payment benefit provided under Jersey Central Power & Light Company's Severance Procedure. 2. The excess pension benefit payable to James R. Leva pursuant to the amended Agreement dated August 1, 1996, between Jersey Central Power & Light Company and Mr. Leva. 3. All benefit amounts payable under the Jersey Central Power & Light Company Supplemental and Excess Benefits Plan. 4. All benefit amounts payable under the GPU System Companies Deferred Compensation Plan. 5. Awards for Performance Periods preceding and including Change in Control payable under the Incentive Compensation Plan for Elected Officers of Jersey Central Power & Light Company. 6. Cash equivalency payments for Restricted Units and Performance Units Awards, and non-deferred Performance Cash Incentive Awards, payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. 7. Premiums on life insurance policies issued under Senior Executive Life Insurance Program, payable by Jersey Central Power & Light Company pursuant to Split Dollar Agreement with Dennis P. Baldassari. 8. The severance payment benefit payable to Dennis P. Baldassari provided under the Severance Agreement, dated August 1, 1996, between Mr. Baldassari, Jersey Central Power & Light Company and GPU, Inc. Metropolitan Edison Company 1. The severance payment benefit provided under Metropolitan Edison Company's Severance Procedure. 54 2. All benefit amounts payable under the Metropolitan Edison Company Supplemental and Excess Benefits Plan. 3. All benefit amounts payable under the GPU System Companies Deferred Compensation Plan for Elected Officers. 4. Awards for Performance Periods preceding and including Change in Control payable under the Incentive Compensation Plan for Elected Officers of Metropolitan Edison Company. 5. Cash equivalency payments for Restricted Units and Performance Units Awards, and non-deferred Performance Cash Incentive Awards, payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. 6. Premiums on life insurance policies issued under Senior Executive Life Insurance Program, payable by Metropolitan Edison Company pursuant to Split Dollar Agreement with Fred D. Hafer. Pennsylvania Electric Company 1. The severance payment benefit provided under Pennsylvania Electric Company's Severance Procedure. 2. All benefit amounts payable under the Pennsylvania Electric Company Supplemental and Excess Benefits Plan. 3. All benefit amounts payable under the GPU System Companies Deferred Compensation Plan for Elected Officers. 4. Awards for Performance Period preceding Change in Control payable under the Incentive Compensation Plan for Elected Officers of Pennsylvania Electric Company. 5. Cash equivalency payments for Restricted Units and Performance Units Awards, and non-deferred Performance Cash Incentive Awards, payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. 6. Premiums on life insurance policies issued under Senior Executive Life Insurance Program, payable by Pennsylvania Electric Company pursuant to Split Dollar Agreement with Robert L. Wise. 7. The severance payment benefit payable to Robert L. Wise provided under the Severance Agreement, dated August 1, 1996, between Mr. Wise, GPU Generation, Inc. and GPU, Inc. 55 GPU Service, Inc. 1. The severance payment benefit provided under GPU Service Corporation's Severance Procedure. 2. The additional retirement pension and the supplemental pension payable to Ira H. Jolles pursuant to Sections 3 and 4 of the Agreement among GPU, Inc., GPU Service, Inc. and Mr. Jolles. 3. The additional retirement pension payable to Philip C. Mezey pursuant to the Agreement among GPU, Inc., GPU Service, Inc. and Mr. Mezey. 4. The pension payable to Hazel R. O'Leary pursuant to the Agreement among GPU, Inc., GPU Service, Inc. and Mrs. O'Leary. 5. All benefit amounts payable under the GPU Service, Inc. Supplemental and Excess Benefits Plan. 6. All benefit amounts payable under the GPU System Companies Deferred Compensation Plan. 7. Awards for Performance Periods preceding and including Change in Control payable under the Incentive Compensation Plan for Elected Officers of GPU Service, Inc. 8. Cash equivalency payments for Restricted Units and Performance Units Awards, and non-deferred Performance Cash Incentive Awards, payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. 9. Premiums on life insurance policies issued under Senior Executive Life Insurance Program, payable by GPU Service, Inc. pursuant to Split Dollar Agreements with Messrs. Leva, Jolles, Graham, Arnold, Donofrio and Mezey, and pursuant to Letter Agreements with Messrs. Kuhns and Dieckamp. 10. Supplemental pension payable to William G. Kuhns pursuant to the Agreement among GPU, Inc., GPU Service, Inc. and Mr. Kuhns. 11. The retirement annuity payable to James B. Liberman pursuant to the Agreement between GPU Service, Inc. and Mr. Liberman. 12. The supplemental pension payable to Herman Dieckamp pursuant to the Agreement among GPU, Inc., GPU Service, Inc. and Mr. Dieckamp. 13. Annuities payable to Messrs. Kuhns, Dieckamp and Condon under the Deferred Compensation Plan for Senior Officers of GPU Service, Inc. 56 14. The supplemental pension payable to Messrs. R. C. Arnold, J. G. Graham and I. H. Jolles pursuant to Agreements between GPU Service, Inc. and Messrs. Arnold, Graham and Jolles. 15. The severance payment benefit payable to Messrs. James R. Leva, R. C. Arnold, J. G. Graham and I. H. Jolles provided under the Severance Agreements, dated August 1, 1996, between GPU, Inc., GPU Service, Inc. and each of Messrs. Leva, Arnold, Graham and Jolles. 16. The severance payment benefit payable to Fred D. Hafer provided under the Severance Agreement, dated August 1, 1996, between Mr. Hafer, GPU Service, Inc. and GPU, Inc. GPU Nuclear, Inc. 1. The severance payment benefit provided under GPU Nuclear Inc.'s Severance Procedure. 2. All benefit amounts payable under the GPU Nuclear Inc. Supplemental and Excess Benefits Plan. 3. All benefit amounts payable under the GPU System Companies Deferred Compensation Plan. 4. Awards for Performance Periods preceding and including Change in Control payable under the Incentive Compensation Plan for Elected Officers of GPU Nuclear Inc. 5. Cash equivalency payments for Restricted Units and Performance Units Awards, and non-deferred Performance Cash Incentive Awards, payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. 6. Premiums on life insurance policies issued under Senior Executive Life Insurance Program, payable by GPU Nuclear Inc. pursuant to Split Dollar Agreements with Philip R. Clark and Thomas G. Broughton. 7. The supplemental pension payable to Philip R. Clark pursuant to the Agreement between GPU Nuclear Inc. and Mr. Clark. 8. The severance payment benefit payable to Thomas G. Broughton provided under the Severance Agreement, dated August 1, 1996, between Mr. Broughton, GPU Nuclear Inc. and GPU, Inc. 57 GPU International, Inc. 1. All benefit amounts payable under the GPU Service, Inc. Supplemental and Excess Benefits Plan, as adopted by GPU International, Inc. 2. All benefit amounts payable under the GPU System Companies Deferred Compensation Plan. 3. Awards for Performance Periods preceding and including Change in Control payable under the Annual Performance Award Plan of GPU International, Inc. 4. Cash equivalency payments for Restricted Units and Performance Units Awards, and non-deferred Performance Cash Incentive Awards, payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. 5. Premiums on life insurance policies issued under Senior Executive Life Insurance Program, payable by GPU International, Inc. pursuant to Split Dollar Agreement with Bruce L. Levy. 6. The severance payment benefit payable to Bruce L. Levy provided under the Severance Agreement, dated August 1, 1996, between Mr. Levy, GPU International, Inc. and GPU, Inc. 58 EXHIBIT C-1 GPU RABBI TRUST PARTICIPANT INFORMATION SOCIAL NAME ADDRESS SECURITY No. Arnold 7 Fernwood Trail, PO Box 151 ###-##-#### Mountain Lakes, New Jersey 07046 Baldassari 9 Willow Spring Drive ###-##-#### Morristown, New Jersey 07960 Broughton 7 Knoll Top Court ###-##-#### Denville, New Jersey 07834 Clark 297 Morris Avenue ###-##-#### Mountain Lakes, New Jersey 07046 Condon Box 116 Young's Road ###-##-#### Basking Ridge, New Jersey 07920 Dieckamp 29 Crystal Road ###-##-#### Mountain Lakes, New Jersey 07046 Donofrio 40 Longview Avenue ###-##-#### Randolph, New Jersey 07869 Graham 21 Candace Lane ###-##-#### Chatham Township, New Jersey 07928 Hafer 1730 Meadowlark Road ###-##-#### Wyomissing, Pennsylvania 19610 Jolles 610 West End Avenue ###-##-#### New York, New York 10024 Kuhns 49 Creston Avenue ###-##-#### Tenafly, New Jersey 07670 Leva 2 Ryan Court ###-##-#### Chester, New Jersey 07930 Levy 5 Oak Ridge Court ###-##-#### Pomona, New York 10970 Liberman 205 East 69th Street ###-##-#### New York, New York 10021 Mezey 46 Gatehouse Road ###-##-#### Bedminster, New Jersey 07921 O'Leary 5610 Wisconsin Avenue PH20C ###-##-#### Chevy Chase, Maryland 20815 Wise 701 Tioga Street ###-##-#### Johnstown, Pennsylvania 15905 59 EXHIBIT C-2 GPU RABBI TRUST SEVERANCE PLAN - 8/1/96 TERMS OF PAYMENT: AMOUNT OF PAYMENT: Weeks Base Pay Payment FORM/TIMING OF PAYMENT: Lump sum. 60 EXHIBIT C-3 GPU RABBI TRUST INCENTIVE COMPENSATION PLAN TERM OF PAYMENT: AMOUNT OF PAYMENT: Payment FORM/TIMING OF PAYMENT: Lump sum. 61 EXHIBIT C-4 GPU RABBI TRUST SENIOR EXECUTIVE LIFE INSURANCE PLAN TERMS OF PAYMENT: AMOUNT OF PAYMENT: FORM/TIMING OF PAYMENT: Lump sum payment on or before of indicated year to the Life Insurance Company of Virginia. 62 EXHIBIT C-5 GPU RABBI TRUST DEFERRED COMPENSATION PLAN TERMS OF PAYMENT: PAYMENT SCHEDULE: Balance FORM/TIMING OF PAYMENT: Lump sum amount on or before of indicated year. 63 EXHIBIT C-6 GPU RABBI TRUST EMPLOYEE STOCK PLAN TERMS OF PAYMENT: AMOUNT OF PAYMENT: Gross-Up Balance Percentage Payment FORM/TIMING OF PAYMENT: Lump sum amount on or before_________ ______________________. 64 EXHIBIT C-7 GPU RABBI TRUST DEFERRED COMPENSATION PENSION PLAN TERMS OF PAYMENT: Each participant listed below is entitled to a monthly payment for his/her life with continuing payments to his/her beneficiary if he/she has elected a joint and survivor option. AMOUNT OF PAYMENT: AMOUNTS IN PAYMENT STATUS Monthly Option Payment Elected Beneficiary FORM/TIMING OF PAYMENT: On or before of each month the amount indicated above shall be paid to the participant or his beneficiary. 65 EXHIBIT C-8 GPU RABBI TRUST SPECIAL PENSION PLAN TERMS OF PAYMENT: Each participant listed below is entitled to a monthly payment for his/her life with continuing payments to his/her beneficiary if he/she has elected a joint and survivor option. AMOUNT OF PAYMENT: AMOUNTS IN PAYMENT STATUS Monthly Option Payment Elected Beneficiary FORM/TIMING OF PAYMENT: On or before of each month the amount indicated above shall be paid to the participant or his beneficiary. 66 EXHIBIT C-9 GPU RABBI TRUST SUPPLEMENTAL AND EXCESS PENSIONS TERMS OF PAYMENT: Each participant listed below is entitled to a monthly payment for his/her life with continuing payments to his/her beneficiary if he/she has elected a joint and survivor option. The determination of amount payable is made in accordance with the Company's Excess and Supplemental Benefits Plan for Elected Officers. AMOUNT OF PAYMENT: AMOUNTS IN PAYMENT STATUS Monthly Option Payment Elected Beneficiary OTHER AMOUNTS FORM/TIMING OF PAYMENT: On or before of each month the amount indicated above shall be paid to the participant or his beneficiary. 67 EXHIBIT C-10 GPU RABBI TRUST SUPPLEMENTAL PENSION AGREEMENT - MEZEY TERMS OF PAYMENT: Mr. Philip Mezey shall be entitled to a supplemental pension benefit in accordance with the retirement provisions contained in his employment agreement with GPU, Inc. (attached, amended 8/1/96, signed _______). AMOUNT OF PAYMENT: FORM/TIMING OF PAYMENT: On or before of each month the amount indicated above shall be paid to the participant or his beneficiary. 68 EXHIBIT C-11 GPU RABBI TRUST SUPPLEMENTAL PENSION AGREEMENT - JOLLES TERMS OF PAYMENT: Mr. Ira Jolles shall be entitled to a supplemental pension benefit in accordance with the retirement provisions contained in his employment agreement with GPU, Inc. and GPU Service, Inc. (attached, amended 8/1/96). AMOUNT OF PAYMENT: FORM/TIMING OF PAYMENT: On or before of each month the amount indicated above shall be paid to the participant or his beneficiary. 69 EXHIBIT C-12 GPU RABBI TRUST Severance Agreement Payment TERMS OF PAYMENT: Mr. [Name of Officer] shall be entitled to a severance payment benefit in accordance with the provisions contained in his severance agreement with [Company Name] and GPU, Inc. (attached, dated 8/1/96). AMOUNT OF PAYMENT: FORM/TIMING OF PAYMENT: On or before the amount indicated above shall be paid to the participant or his beneficiary. 70 EXHIBIT D PARTICIPANT'S PAYMENT REQUEST FORM I, _______________________________________________, a Participant [or Beneficiary] in the GPU System Companies Master Executives' Benefits Protection Trust (the "Trust"), adopted September 1, 1995 and amended August 1, 1996, pursuant to Section 4.3(b) thereof, hereby request that [Name of Bank], as Trustee thereunder, make payment to me of the Benefits to which I am entitled as [Participant or Beneficiary] in accordance with the terms of the Trust Agreement and the following [Company Name] Plans: _______________________________ _______________________________ _______________________________ _______________________________ I hereby attest, certify and affirm that to the best of my knowledge and belief the following events, upon which entitlement to and payment of Benefits under said Plans is conditioned, have occurred: [Insert Description of events that have occurred] I further attest, certify and affirm that [Name of Company] has not paid any of the Benefits claimed herein under said plans. I am [or The Participant was] ____ years of age, having been born on [Date of Birth]. I have been/was [or the Participant was] employed by [Name of Company] from [Date] to [Date]. The [Name of Company] records detailing my [his/her] compensation and the terms and conditions of employment, if any, are attached hereto and made a part hereof. Dated:_________________ _______________________ [Name of Participant] _______________________ _______________________ [Address & Telephone No.] 71 EXHIBIT E REQUEST AND AUTHORIZATION FOR LITIGATION I, _______________________________________________, a Participant in the GPU System Companies Master Executives' Benefits Protection Trust (the "Trust"), adopted September 1, 1995 and amended August 1, 1996, pursuant to Section 5.3 (b) thereof, hereby request and authorize [Name of Bank], as Trustee thereunder, to institute and prosecute legal proceedings (the "Litigation"), on my behalf, against [Name of GPU System Company] to recover upon my claim against said company for unpaid benefits under [Name of Plan under which claim is asserted]. It is understood that, pursuant to Section 5.3(e) of the Trust Agreement, I may revoke this authorization to prosecute or continue to prosecute such Litigation, at any time, upon written notification to the Trustee in the appropriate form. Dated:_________________ ___________________________ [Name of Participant] ___________________________ ___________________________ ___________________________ [Address & Telephone No.] 72 EXHIBIT F REVOCATION OF AUTHORITY TO CONTINUE LITIGATION I, _______________________________________________, a Participant in the GPU System Companies Master Executives' Benefits Protection Trust (the "Trust"), adopted September 1, 1995 and amended August 1, 1996, pursuant to Section 5.3 (e) thereof, hereby revoke the authorization previously granted by me to [Name of Bank], as Trustee thereunder, to institute and prosecute legal proceedings (the "Litigation), on my behalf, against [Name of GPU System Company] for unpaid Benefits under [Name of Plan under which claim is asserted]. I hereby notify the Trustee that I have appointed and retained [Name Attorney ] of [Address ] to represent me and my interests in such Litigation. I understand that the fees and expenses of my attorney in connection with the Litigation or otherwise shall be my sole responsibility and that neither me nor my attorney will be entitled to direct payment for any such fees or expenses out of the Trust fund or any portion thereof. Dated:_________________ ___________________________ [Name of Participant] ___________________________ ___________________________ ___________________________ [Address & Telephone No.] 73 EX-10.G 10 EXHIBIT 10G Exhibit 10-G INCENTIVE COMPENSATION PLAN FOR ELECTED OFFICERS OF JERSEY CENTRAL POWER & LIGHT COMPANY (AS AMENDED AND RESTATED AUGUST 1, 1996) 1. Purpose. The purpose of the Incentive Compensation Plan for Elected Officers of Jersey Central Power & Light Company (the "Plan") is to attract and retain highly qualified employees, to obtain from each the best possible performance, and to underscore the importance to them of achieving particular business objectives established for Jersey Central Power & Light Company and its affiliates. 2. Definitions. For the purposes of the Plan, the following terms shall have the following meanings: A. Awards. Incentive Compensation Awards made pursuant to the Plan. B. Board. The Board of Directors of GPU, Inc. unless otherwise specified. C. Change in Control. A "Change in Control" shall mean the occurrence of: (1) An acquisition (other than directly from the Corporation) of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of 1 which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non- Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of 2 directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. D. Committee. The Personnel, Compensation and Nominating Committee of the Board or any successor thereto. E. Company. Jersey Central Power & Light Company 3 F. Corporation. GPU, Inc. G. Employee. An individual who was on the active salaried payroll of the Company or a subsidiary of the Company at any time during the period for which an Award is made. H. Executive Committee. The Executive Committee of the Board of Directors of the Company. I. Officer. An Officer of the Company who is elected by the Company's Board of Directors and is an Employee of the Company, but not including Assistant Comptrollers, Assistant Secretaries and Assistant Treasurers. J. Performance Period. The fiscal year (currently the calendar year) for which Awards are made. 3. Effective Date. The effective date of the Plan is July 1, 1987. 4. Amounts Available for Awards. A. The aggregate amount available for Awards for any Performance Period shall be determined by the Board upon the recommendation of the Committee. B. No Awards shall be made for a Performance Period if during such Performance Period no dividends were declared or paid on shares of Common Stock. 5. Eligibility for Awards. A. The Executive Committee shall determine the Officers, if any, who are eligible for Awards for each Performance Period, subject, in the case of the President and of Officers who are also Officers of the Corporation, to the concurrence of the Board. B. The Executive Committee may include, among Officers eligible for Awards for a Performance Period, Officers whose employment terminated (whether by reason of retirement, death, disability or other cause) during such Performance Period. 4 6. Determination of Amounts of Awards. A. The Executive Committee shall determine the amounts of Awards subject, in the case of Officers who are also Officers of the Corporation, to the concurrence of the Board, either at or following the end of the Performance Period to which they relate. The amount of the Awards to be made for any Performance Period shall be so determined in accordance with the methods and procedures set forth in the GPU System Officer Incentive Compensation Plan Administrative Manual as in effect for such Performance Period (the "Manual"). B. Notwithstanding the foregoing or any other provision herein or in the Manual to the contrary, if a Change in Control occurs, then in respect of the Performance Period in which the Change in Control occurs (and in respect of the previous Performance Period if the Change in Control occurs prior to the time Awards for such Performance Period have been made), the following provisions shall apply: (i) each objective of the Company's for each such Performance Period shall be deemed to have been 100% achieved; (ii) the Company's Final Pool for each such Performance Period shall be deemed to be 100% of the Company's Target Pool for each such Performance Period (or if, as of the date of the Change in Control, the Target Pool has not been determined for the Performance Period, the Target Pool for the immediately preceding Performance Period); (iii) each Officer who, prior to the occurrence of such Change in Control, was determined to be eligible for an Award for each such Performance Period ("Eligible Officer") shall be entitled to receive an Award for each such Performance Period; (iv) the amount of the Award to be made to each Eligible Officer shall be determined by multiplying the Company's Final Pool for each such Performance Period by a fraction the numerator of which is the amount of the Eligible Officer's annual base salary that was taken into account in determining the Company's Target Pool for each such Performance Period, and the denominator of which is the aggregate amount of the Annual Base Salaries of all Eligible Officers so taken into account; provided, however, that in the event an Eligible Officer is terminated by the Company without "Cause" (as defined below) during the Performance Period in which a Change in Control occurs, the amount of the Award to be made to such Eligible Officer in respect of that Performance Period shall be the amount determined above multiplied by a fraction, the numerator of which is the number of days that have elapsed since the end of the immediately preceding Performance Period through the date of termination and the denominator of which is 365. 5 A termination is for Cause if the Eligible Officer is convicted of a felony or where the Eligible Officer (1) intentionally and continually failed substantially to perform his or her reasonably assigned duties with the Company (other than a failure resulting from the Eligible Officer's incapacity due to physical or mental illness) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer, has been delivered to the Eligible Officer specifying the manner in which he or she has failed substantially to perform, or (2) intentionally engaged in conduct which is demonstrably and materially injurious to the Corporation or the Company. No act, nor failure to act, on the Eligible Officer's part, shall be considered "intentional" unless he or she has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Eligible Officer's action or failure to act was in the best interest of the Corporation and the Company. 7. Form of Awards. Awards shall be made in cash. 8. Payment of Awards. Unless it has been deferred pursuant to the GPU System Companies Deferred Compensation Plan, an Award shall be paid as soon as practicable after it is made, but in any event by no later than 60 days after the date on which the Award has been made; provided, however, that if an Eligible Officer is entitled to a pro-rated Award pursuant to the proviso in Section 6.B(iv), such pro-rated Award shall be paid within twenty (20) days after the Eligible Officer's date of termination. 9. Special Awards and Other Plans. Nothing contained in the Plan shall prohibit the Company from granting special performance or recognition awards under such conditions, and in such form and manner as it sees fit, or from establishing other incentive compensation plans providing for the payment of incentive compensation to Employees; provided, however, that an Officer who receives an Award under this Plan shall not receive an award for the same Performance Period under any other annual incentive plan. 10. Amendment and Interpretation of the Plan. A. Action to amend, modify, suspend or terminate the Plan may be taken by the Company either by resolution duly adopted by the Company's Board of Directors, or by an instrument in writing executed by an Officer of the Company to whom authority to adopt or approve amendments to the Plan has been 6 delegated pursuant to a resolution duly adopted by the Company's Board of Directors; provided, however, that any amendment to Section 4, Section 6 or this Section 10.A shall be subject to the concurrence of the Board; provided further, however, that Section 2.C, Section 6 and this Section 10 may not be amended or modified, and the Plan may not be suspended or terminated, (i) at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, if the amendment, modification, suspension or termination adversely affects the rights of any Eligible Officer under the Plan. No amendment or termination of the Plan shall reduce or otherwise adversely affect an Award already made hereunder without the consent of the Officer affected. B. The Executive Committee is authorized to determine in its discretion all questions that may arise as to the construction or interpretation of the Plan, and to resolve any claims that may arise with respect to any Officer's rights or entitlement to any payment under the Plan. The decision of the Executive Committee with respect to any such questions or claims shall be final, conclusive and binding on all parties. Notwithstanding the foregoing, any decision made by the Executive Committee after the occurrence of a Change in Control shall be subject to judicial review under a "de novo", rather than a deferential, standard. 11. Miscellaneous. A. All expenses and costs in connection with the operation of the Plan shall be borne by the Company. B. All Awards under the Plan are subject to applicable withholding for federal, state and local taxes. C. The Participation of any Officer in the Plan may be terminated at any time. No promise or representation, either express or implied, is made to any Officer with respect to con- tinued employment, transfer or promotion because of his or her participation in the Plan. D. Each Officer who is a participant in the Plan shall have the status of a general unsecured creditor of the Company with respect to any amounts payable to the Officer hereunder. The Plan shall constitute a mere promise by the Company to make payments in the future of the Awards provided for herein. It is the intention of the Company that the arrangements reflected in this Plan be treated as unfunded for tax purposes and, if it should be determined that Title I of ERISA is applicable to such arrangements, for purposes of Title I of ERISA. 7 E. An Officer's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Officer or the Officer's beneficiary. 8 EX-10.H 11 EXHIBIT 10H Exhibit 10-H INCENTIVE COMPENSATION PLAN FOR ELECTED OFFICERS OF METROPOLITAN EDISON COMPANY (AS AMENDED AND RESTATED AUGUST 1, 1996) 1. Purpose. The purpose of the Incentive Compensation Plan for Elected Officers of Metropolitan Edison Company (the "Plan") is to attract and retain highly qualified employees, to obtain from each the best possible performance, and to underscore the importance to them of achieving particular business objectives established for Metropolitan Edison Company and its affiliates. 2. Definitions. For the purposes of the Plan, the following terms shall have the following meanings: A. Awards. Incentive Compensation Awards made pursuant to the Plan. B. Board. The Board of Directors of GPU, Inc. unless otherwise specified. C. Change in Control. A "Change in Control" shall mean the occurrence of: (1) An acquisition (other than directly from the Corporation) of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting 1 equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non- Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a 2 corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. D. Committee. The Personnel, Compensation and Nominating Committee of the Board or any successor thereto. E. Company. Metropolitan Edison Company F. Corporation. GPU, Inc. 3 G. Employee. An individual who was on the active salaried payroll of the Company or a subsidiary of the Company at any time during the period for which an Award is made. H. Executive Committee. The Executive Committee of the Board of Directors of the Company. I. Officer. An Officer of the Company who is elected by the Company's Board of Directors and is an Employee of the Company, but not including Assistant Comptrollers, Assistant Secretaries and Assistant Treasurers. J. Performance Period. The fiscal year (currently the calendar year) for which Awards are made. 3. Effective Date. The effective date of the Plan is July 1, 1987. 4. Amounts Available for Awards. A. The aggregate amount available for Awards for any Performance Period shall be determined by the Board upon the recommendation of the Committee. B. No Awards shall be made for a Performance Period if during such Performance Period no dividends were declared or paid on shares of Common Stock. 5. Eligibility for Awards. A. The Executive Committee shall determine the Officers, if any, who are eligible for Awards for each Performance Period, subject, in the case of the President and of Officers who are also Officers of the Corporation, to the concurrence of the Board. B. The Executive Committee may include, among Officers eligible for Awards for a Performance Period, Officers whose employment terminated (whether by reason of retirement, death, disability or other cause) during such Performance Period. 6. Determination of Amounts of Awards. A. The Executive Committee shall determine the amounts of Awards subject, in the case of Officers who are also Officers of the Corporation, to the concurrence of the Board, either at or following the end of the Performance Period to which 4 they relate. The amount of the Awards to be made for any Performance Period shall be so determined in accordance with the methods and procedures set forth in the GPU System Officer Incentive Compensation Plan Administrative Manual as in effect for such Performance Period (the "Manual"). B. Notwithstanding the foregoing or any other provision herein or in the Manual to the contrary, if a Change in Control occurs, then in respect of the Performance Period in which the Change in Control occurs (and in respect of the previous Performance Period if the Change in Control occurs prior to the time Awards for such Performance Period have been made), the following provisions shall apply: (i) each objective of the Company's for each such Performance Period shall be deemed to have been 100% achieved; (ii) the Company's Final Pool for each such Performance Period shall be deemed to be 100% of the Company's Target Pool for each such Performance Period (or if, as of the date of the Change in Control, the Target Pool has not been determined for the Performance Period, the Target Pool for the immediately preceding Performance Period); (iii) each Officer who, prior to the occurrence of such Change in Control, was determined to be eligible for an Award for each such Performance Period ("Eligible Officer") shall be entitled to receive an Award for each such Performance Period; (iv) the amount of the Award to be made to each Eligible Officer shall be determined by multiplying the Company's Final Pool for each such Performance Period by a fraction the numerator of which is the amount of the Eligible Officer's annual base salary that was taken into account in determining the Company's Target Pool for each such Performance Period, and the denominator of which is the aggregate amount of the Annual Base Salaries of all Eligible Officers so taken into account; provided, however, that in the event an Eligible Officer is terminated by the Company without "Cause" (as defined below) during the Performance Period in which a Change in Control occurs, the amount of the Award to be made to such Eligible Officer in respect of that Performance Period shall be the amount determined above multiplied by a fraction, the numerator of which is the number of days that have elapsed since the end of the immediately preceding Performance Period through the date of termination and the denominator of which is 365. A termination is for Cause if the Eligible Officer is convicted of a felony or where the Eligible Officer (1) intentionally and continually failed substantially to perform his or her reasonably assigned duties with the Company (other than a failure resulting from the Eligible Officer's incapacity due to physical or mental illness) which failure continued for a period of at least thirty 5 (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer, has been delivered to the Eligible Officer specifying the manner in which he or she has failed substantially to perform, or (2) intentionally engaged in conduct which is demonstrably and materially injurious to the Corporation or the Company. No act, nor failure to act, on the Eligible Officer's part, shall be considered "intentional" unless he or she has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Eligible Officer's action or failure to act was in the best interest of the Corporation and the Company. 7. Form of Awards. Awards shall be made in cash. 8. Payment of Awards. Unless it has been deferred pursuant to the GPU System Companies Deferred Compensation Plan, an Award shall be paid as soon as practicable after it is made, but in any event by no later than 60 days after the date on which the Award has been made; provided, however, that if an Eligible Officer is entitled to a pro-rated Award pursuant to the proviso in Section 6.B(iv), such pro-rated Award shall be paid within twenty (20) days after the Eligible Officer's date of termination. 9. Special Awards and Other Plans. Nothing contained in the Plan shall prohibit the Company from granting special performance or recognition awards under such conditions, and in such form and manner as it sees fit, or from establishing other incentive compensation plans providing for the payment of incentive compensation to Employees; provided, however, that an Officer who receives an Award under this Plan shall not receive an award for the same Performance Period under any other annual incentive plan. 10. Amendment and Interpretation of the Plan. A. Action to amend, modify, suspend or terminate the Plan may be taken by the Company either by resolution duly adopted by the Company's Board of Directors, or by an instrument in writing executed by an Officer of the Company to whom authority to adopt or approve amendments to the Plan has been delegated pursuant to a resolution duly adopted by the Company's Board of Directors; provided, however, that any amendment to Section 4, Section 6 or this Section 10.A shall be subject to the concurrence of the Board; provided further, however, that Section 2.C, Section 6 and this Section 10 may not be amended or modified, and the Plan may not be suspended or terminated, (i) at 6 the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, if the amendment, modification, suspension or termination adversely affects the rights of any Eligible Officer under the Plan. No amendment or termination of the Plan shall reduce or otherwise adversely affect an Award already made hereunder without the consent of the Officer affected. B. The Executive Committee is authorized to determine in its discretion all questions that may arise as to the construction or interpretation of the Plan, and to resolve any claims that may arise with respect to any Officer's rights or entitlement to any payment under the Plan. The decision of the Executive Committee with respect to any such questions or claims shall be final, conclusive and binding on all parties. Notwithstanding the foregoing, any decision made by the Executive Committee after the occurrence of a Change in Control shall be subject to judicial review under a "de novo", rather than a deferential, standard. 11. Miscellaneous. A. All expenses and costs in connection with the operation of the Plan shall be borne by the Company. B. All Awards under the Plan are subject to applicable withholding for federal, state and local taxes. C. The Participation of any Officer in the Plan may be terminated at any time. No promise or representation, either express or implied, is made to any Officer with respect to continued employment, transfer or promotion because of his or her participation in the Plan. D. Each Officer who is a participant in the Plan shall have the status of a general unsecured creditor of the Company with respect to any amounts payable to the Officer hereunder. The Plan shall constitute a mere promise by the Company to make payments in the future of the Awards provided for herein. It is the intention of the Company that the arrangements reflected in this Plan be treated as unfunded for tax purposes and, if it should be determined that Title I of ERISA is applicable to such arrangements, for purposes of Title I of ERISA. E. An Officer's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Officer or the Officer's beneficiary. 7 EX-10.I 12 EXHIBIT 10I Exhibit 10-I INCENTIVE COMPENSATION PLAN FOR ELECTED OFFICERS OF PENNSYLVANIA ELECTRIC COMPANY (AS AMENDED AND RESTATED AUGUST 1, 1996) 1. Purpose. The purpose of the Incentive Compensation Plan for Elected Officers of Pennsylvania Electric Company (the "Plan") is to attract and retain highly qualified employees, to obtain from each the best possible performance, and to underscore the importance to them of achieving particular business objectives established for Pennsylvania Electric Company and its affiliates. 2. Definitions. For the purposes of the Plan, the following terms shall have the following meanings: A. Awards. Incentive Compensation Awards made pursuant to the Plan. B. Board. The Board of Directors of GPU, Inc. unless otherwise specified. C. Change in Control. A "Change in Control" shall mean the occurrence of: (1) An acquisition (other than directly from the Corporation) of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is 1 used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board (the "Incumbent 2 Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: 3 (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by 4 the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur 5 (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. D. Committee. The Personnel, Compensation and Nominating Committee of the Board or any successor thereto. E. Company. Pennsylvania Electric Company. F. Corporation. GPU, Inc. G. Employee. An individual who was on the active salaried payroll of the Company or a subsidiary of the Company at any time during the period for which an Award is made. H. Executive Committee. The Executive Committee of the Board of Directors of the Company. I. Officer. An Officer of the Company who is elected by the Company's Board of Directors and is an Employee of the Company, but not including Assistant Comptrollers, Assistant Secretaries and Assistant Treasurers. 6 J. Performance Period. The fiscal year (currently the calendar year) for which Awards are made. 3. Effective Date. The effective date of the Plan is July 1, 1987. 4. Amounts Available for Awards. A. The aggregate amount available for Awards for any Performance Period shall be determined by the Board upon the recommendation of the Committee. B. No Awards shall be made for a Performance Period if during such Performance Period no dividends were declared or paid on shares of Common Stock. 5. Eligibility for Awards. A. The Executive Committee shall determine the Officers, if any, who are eligible for Awards for each Performance Period, subject, in the case of the President and of Officers who are also Officers of the Corporation, to the concurrence of the Board. B. The Executive Committee may include, among Officers eligible for Awards for a Performance Period, Officers whose employment terminated (whether by reason of retirement, death, disability or other cause) during such Performance Period. 7 6. Determination of Amounts of Awards. A. The Executive Committee shall determine the amounts of Awards subject, in the case of Officers who are also Officers of the Corporation, to the concurrence of the Board, either at or following the end of the Performance Period to which they relate. The amount of the Awards to be made for any Performance Period shall be so determined in accordance with the methods and procedures set forth in the GPU System Officer Incentive Compensation Plan Administrative Manual as in effect for such Performance Period (the "Manual"). B. Notwithstanding the foregoing or any other provision herein or in the Manual to the contrary, if a Change in Control occurs, then in respect of the Performance Period in which the Change in Control occurs (and in respect of the previous Performance Period if the Change in Control occurs prior to the time Awards for such Performance Period have been made), the following provisions shall apply: (i) each objective of the Company's for each such Performance Period shall be deemed to have been 100% achieved; (ii) the Company's Final Pool for each such Performance Period shall be deemed to be 100% of the Company's Target Pool for each such Performance Period (or if, as of the date of the Change in Control, the Target Pool has not been determined for the Performance Period, the Target Pool for the immediately preceding Performance Period); (iii) each Officer who, prior to the occurrence of such Change in Control, was determined to be eligible for an 8 Award for each such Performance Period ("Eligible Officer") shall be entitled to receive an Award for each such Performance Period; (iv) the amount of the Award to be made to each Eligible Officer shall be determined by multiplying the Company's Final Pool for each such Performance Period by a fraction the numerator of which is the amount of the Eligible Officer's annual base salary that was taken into account in determining the Company's Target Pool for each such Performance Period, and the denominator of which is the aggregate amount of the Annual Base Salaries of all Eligible Officers so taken into account; provided, however, that in the event an Eligible Officer is terminated by the Company without "Cause" (as defined below) during the Performance Period in which a Change in Control occurs, the amount of the Award to be made to such Eligible Officer in respect of that Performance Period shall be the amount determined above multiplied by a fraction, the numerator of which is the number of days that have elapsed since the end of the immediately preceding Performance Period through the date of termination and the denominator of which is 365. A termination is for Cause if the Eligible Officer is convicted of a felony or where the Eligible Officer (1) intentionally and continually failed substantially to perform his or her reasonably assigned duties with the Company (other than a failure resulting from the Eligible Officer's incapacity due to 9 physical or mental illness) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer, has been delivered to the Eligible Officer specifying the manner in which he or she has failed substantially to perform, or (2) intentionally engaged in conduct which is demonstrably and materially injurious to the Corporation or the Company. No act, nor failure to act, on the Eligible Officer's part, shall be considered "intentional" unless he or she has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Eligible Officer's action or failure to act was in the best interest of the Corporation and the Company. 7. Form of Awards. Awards shall be made in cash. 8. Payment of Awards. Unless it has been deferred pursuant to the GPU System Companies Deferred Compensation Plan, an Award shall be paid as soon as practicable after it is made, but in any event by no later than 60 days after the date on which the Award has been made; provided, however, that if an Eligible Officer is entitled to a pro-rated Award pursuant to the proviso in Section 6.B(iv), such pro-rated Award shall be paid within twenty (20) days after the Eligible Officer's date of termination. 10 9. Special Awards and Other Plans. Nothing contained in the Plan shall prohibit the Company from granting special performance or recognition awards under such conditions, and in such form and manner as it sees fit, or from establishing other incentive compensation plans providing for the payment of incentive compensation to Employees; provided, however, that an Officer who receives an Award under this Plan shall not receive an award for the same Performance Period under any other annual incentive plan. 10. Amendment and Interpretation of the Plan. A. Action to amend, modify, suspend or terminate the Plan may be taken by the Company either by resolution duly adopted by the Company's Board of Directors, or by an instrument in writing executed by an Officer of the Company to whom authority to adopt or approve amendments to the Plan has been delegated pursuant to a resolution duly adopted by the Company's Board of Directors; provided, however, that any amendment to Section 4, Section 6 or this Section 10.A shall be subject to the concurrence of the Board; provided further, however, that Section 2.C, Section 6 and this Section 10 may not be amended or modified, and the Plan may not be suspended or terminated, (i) at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control 11 which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, if the amendment, modification, suspension or termination adversely affects the rights of any Eligible Officer under the Plan. No amendment or termination of the Plan shall reduce or otherwise adversely affect an Award already made hereunder without the consent of the Officer affected. B. The Executive Committee is authorized to determine in its discretion all questions that may arise as to the construction or interpretation of the Plan, and to resolve any claims that may arise with respect to any Officer's rights or entitlement to any payment under the Plan. The decision of the Executive Committee with respect to any such questions or claims shall be final, conclusive and binding on all parties. Notwithstanding the foregoing, any decision made by the Executive Committee after the occurrence of a Change in Control shall be subject to judicial review under a "de novo", rather than a deferential, standard. 11. Miscellaneous. A. All expenses and costs in connection with the operation of the Plan shall be borne by the Company. B. All Awards under the Plan are subject to applicable withholding for federal, state and local taxes. C. The Participation of any Officer in the Plan may be terminated at any time. No promise or representation, either express or implied, is made to any Officer with respect to con- 12 tinued employment, transfer or promotion because of his or her participation in the Plan. D. Each Officer who is a participant in the Plan shall have the status of a general unsecured creditor of the Company with respect to any amounts payable to the Officer hereunder. The Plan shall constitute a mere promise by the Company to make payments in the future of the Awards provided for herein. It is the intention of the Company that the arrangements reflected in this Plan be treated as unfunded for tax purposes and, if it should be determined that Title I of ERISA is applicable to such arrangements, for purposes of Title I of ERISA. E. An Officer's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Officer or the Officer's beneficiary. 13 EX-10.J 13 EXHIBIT 10J Exhibit 10-J DEFERRED REMUNERATION PLAN FOR OUTSIDE DIRECTORS OF JERSEY CENTRAL POWER & LIGHT COMPANY (AS AMENDED AND RESTATED EFFECTIVE NOVEMBER 7, 1996) 1. Purpose 1.1 The purpose of this document is to set forth the Deferred Remuneration Plan for Outside Directors, as amended and restated effective November 7, 1996. The Plan will be implemented by individual elections by each Director. 2. Plan Summary 2.1 This Plan provides for deferral by Directors of all or a portion of current Remuneration. 2.2 Funds being deferred will be credited with the equivalent of interest in accordance with Section 6. 2.3 Each component of the deferred funds will be distributed as follows: (a) for a Director who elects deferral until a date or dates following his or her Retirement, to the Director, in accordance with his or her latest effective election, and subject to provisions of Section 4.5; (b) for a Director who elects deferral until a date or dates preceding his or her Retirement, to the Director, in accordance with his or her initial election; or (c) if a Director dies before the deferred funds have been fully distributed, to his or her designated beneficiary, in accordance with the option selected by the Director under Section 7.2 for each component except as the Board may otherwise determine, based on the circumstances at the time the distribution is to commence. 3. Definition of Terms 3.1 Board of Directors - refers to the Board of Directors of Jersey Central Power & Light Company. 3.2 Change in Control - A "Change in Control" shall mean the occurrence during the term of the Plan of: (1) An acquisition (other than directly from GPU, Inc. (the "Corporation")) of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors of the Corporation (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the board of directors of the Corporation (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the board of directors of the Corporation; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two- thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Corporation (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization 2 involving the Corporation, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock; (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the 3 acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 3.3 Company - refers to Jersey Central Power & Light Company. 3.4 Director - refers to a member of the Board of Directors who is not an employee of Jersey Central Power & Light Company or any of its subsidiaries. 3.5 Plan - refers to this Deferred Remuneration Plan for Outside Directors as described in this document and as it may be amended in the future. 3.6 Remuneration - refers to all cash amounts earned during a calendar year by a Director for services performed as a Director (including services performed as a member of a committee of the Board of Directors), but does not include consulting fees, reimbursement for travel or other expenses or Company contributions to other benefit plans. 3.7 Pre-Retirement Account - refers to the memorandum account which shall be established and maintained for a Director who elects, pursuant to Section 5.2, to have payment of any portion of his or her Remuneration for any Plan Year deferred to a date prior to his or her Retirement. A separate Pre-Retirement Account shall be established and maintained for the Remuneration for each Plan Year which the Director so elects to defer. 3.8 Retirement Account - refers to the memorandum account which shall be established and maintained for a Director who elects, pursuant to Section 5.2, to have payment of any portion of his or her Remuneration for any Plan Year deferred to a date after his or her Retirement. All amounts deferred pursuant to elections made on or before December 31, 1985 under the Plan by a Director, together with all interest equivalents earned by such election and credited to such amounts prior to December 31, 1986, shall be treated, on or after such 4 date, as part of the Director's Retirement Account. 3.9 Retirement - refers to the retirement from service on the Board of Directors, on account of resignation, death, or any other reason, without becoming an employee of Jersey Central Power & Light Company, the Corporation or any of its subsidiaries. 3.10 Plan Year - refers to the period October 1, 1986 through December 31, 1986; and each twelve (12) month period from January 1 through December 31 thereafter. 4. Administration 4.1 The Board of Directors has established this Plan. The Board of Directors may in its sole discretion modify the provisions of the Plan from time-to-time, or, may terminate the entire Plan at any time; provided, however, that Section 3.2, this Section 4.1, Section 4.3, the last sentence of the first paragraph of Section 6 and the last paragraph of Section 7.2 may not be amended or modified, and the Plan may not be terminated, (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, if the amendment, modification or termination adversely affects the rights of any Director under the Plan. No modification or termination of the Plan shall adversely affect the rights of any Director with respect to any amounts standing to the Director's credit in any Account immediately prior to the date of the adoption of such modification or termination, including without limitation any rights with respect to the time and method of payment of, or the crediting of interest equivalents with respect to, any such amounts. 4.2 Responsibility for the ongoing administration of this Plan rests with the Corporate Secretary's Department. 4.3 All questions concerning the disclosure of information relating to this Plan, as well as any dispute over accounting or administrative procedures or interpretation of the Plan, will be resolved at the sole discretion of the Corporate Secretary. The Corporate Secretary will not be liable to any person for any action taken or omitted in connection with the interpretation and the administration of the 5 Plan unless attributable to willful misconduct or lack of good faith. Notwithstanding the foregoing, any determination made by the Corporate Secretary after the occurrence of a "Change in Control" that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential, standard. 4.4 All provisions of this Plan, its administration and interpretation, are intended to be in compliance with appropriate Internal Revenue Service Rulings regarding the construction and operation of a deferred compensation program, so that deferred Remuneration and interest equivalents thereon will not constitute income constructively received prior to being distributed under the terms of this Plan. 4.5 A Director's election to voluntarily defer Remuneration, selection of a distribution commencement date and distribution option, and designation of a beneficiary and contingent beneficiary, made pursuant to this Plan shall be made in writing, on a form furnished to the Director by the Company for such purposes, signed and delivered personally or by first class mail to: Corporate Secretary Jersey Central Power & Light Company 300 Madison Avenue Morristown, New Jersey 07962 Any such election, selection, designation, or change therein, shall not become effective unless and until received by the Corporate Secretary. A distribution election or a change in a distribution election made after May 31, 1987 will not be effective unless made at least twenty-four (24) months prior to his or her Retirement or Disability. 5. Deferral Election 5.1 A Director may elect to defer all or any portion of his or her Remuneration for any Plan Year, providing such portion is three thousand dollars ($3,000) or more. A separate deferral election shall be made with respect to a Director's Remuneration for each Plan Year. An election to defer Remuneration for the 1986 amended Plan Year shall be made on or prior to September 30. In subsequent years, the election shall be made on or before December 31 of the year preceding the Plan Year. Notwithstanding, the foregoing, (a) Directors who are initially elected prior to December 1st of any Plan Year may, within 30 days of such 6 initial election, make a deferral election for the then current Plan Year, and (b) Directors who are initially elected after December 1st of any Plan Year may immediately make a deferral election for both the then current Plan Year and for the immediately succeeding Plan Year; provided, however, that any deferral election made pursuant to clause (a) or (b) hereof shall be effective only with respect to Remuneration earned after such election has become effective. All elections under this Section 5.1 shall be irrevocable. 5.2 In his or her election to defer Remuneration for any Plan Year, a Director shall specify the amount or portion of the Remuneration to be deferred, and shall indicate whether the Remuneration so deferred is to be credited to a Pre-Retirement Account, or to a Retirement Account. 5.3 With respect to Remuneration deferred hereunder for a Plan Year which a Director elects to have credited to his or her Pre-Retirement Account, the Director shall specify in the election form the date on which distribution of the Pre-Retirement Account shall be made or commence. The date so selected shall be no earlier than 24 months from the close of the Plan Year. In the election form for the Plan Year, the Director shall also select an option under Section 7.2 for the distribution of the account. Except as provided in Section 7.4, the date so specified, and the option so selected, may not thereafter be changed by the Director. 5.4 With respect to any Remuneration deferred hereunder which a Director elects to have credited to his or her Retirement Account, the Director may elect a distribution commencement date and a distribution option under Section 7.2 for the distribution of the account, and may change, subject to the provisions of Section 4.5, any election as to the distribution commencement date and distribution option for the account previously made by the Director, at any time prior to his or her Retirement. The distribution commencement date so elected shall be either January 15 of the calendar year following the Director's Retirement, or January 15 of any subsequent calendar year. 5.5 In the case of a Director who, prior to January 1, 1986, made a deferral election under the Plan with respect to his or her Remuneration for the calendar year 1986, any deferral election made by the Director hereunder with respect to the period commencing October 1, 1986 and ending December 31, 1986 shall be effective, for that period, only with respect to the excess, if any, of the amount he or she so elects to 7 defer for said period over the amount of Remuneration for said period deferred pursuant to the Director's prior election. 5.6 The amounts which are deferred, including interest equivalents, will be credited to a Director's Account. Prior to distribution, all amounts deferred including interest equivalents, will constitute general assets of the Company for use as it deems necessary, and will be subject to the claims of the Company's creditors. A Director shall have the status of a mere unsecured creditor of the Company with respect to his or her right to receive any payment under the Plan. The Plan shall constitute a mere promise by the Company to make payments in the future of the benefits provided for herein. It is intended that the arrangements reflected in this Plan be treated as unfunded for tax purposes. 6. Interest Interest equivalents, compounded monthly on deposits treated as monthly transactions, will be credited at the end of each quarter in the calendar year. Such credit will be made to the balance of each account maintained for a Director hereunder, including the undistributed balance of any such account from which payments are being made in installments. The rate used in calculation of interest equivalents will be no less than the rate equal to the simple average of Citibank N.A. of New York Prime Rates for the last business day of each of the three months in the calendar quarter or, if greater, such other rate as established from time to time by the Committee. The Company may, but shall not be required to, purchase a life insurance policy, or policies, to assist it in funding its payment obligations under the Plan. If a policy, or policies, is so purchased, it shall, at all times, remain the exclusive property of the Company and subject to the claims of its creditors. Neither the Director nor any beneficiary or contingent beneficiary designated by him or her shall have any interest in, or rights with respect to such policy. 7. Distribution of Deferred Funds 7.1 A Director's Pre-Retirement Account shall be distributed to the Director, or distributions from such Pre-Retirement Accounts shall commence, on the date or dates specified in the elections made by the Director with respect to such accounts. A Director's Retirement Account shall be distributed to the Director, or distributions from such accounts shall commence, on the date specified in the Director's latest effective 8 election. In such case a distribution election made after May 31, 1987 will not be effective unless selected at least twenty-four (24) months prior to his or her Retirement. 7.2 The options for distribution are: (a) A single lump sum payment. (b) Annual Installments over any fixed number of years selected by the Director, with a minimum of five annual installments required for the Retirement Account. If distribution of a Director's Account is to be made in annual installments under Option (b) of Section 7.2, the amount of each installment will equal the total amount in such account on the date the installment is payable, divided by the number of installments remaining to be paid. In addition, if the distributions are made in installments under Option (b) of Section 7.2, the interest equivalent accrued on the Director's memorandum account each year after the date the first installment is payable will be distributed on each anniversary of such date. Notwithstanding any other provision of the Plan to the contrary or any other optional form of distribution otherwise elected, each Outside Director shall be permitted to make a special distribution election to have the entire balance of his or her Accounts distributed in the form of a single lump sum payment in the event of the Outside Director's Retirement following a Change in Control; provided, however, that such election shall be effective only if it is made at least twelve (12) months prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made at any time; provided, however, that any such revocation or new election shall be effective only if it is made at least twelve (12) months prior to a Change in Control. Any special election, or revocation of a special election, that may be made hereunder shall be made in the manner set forth in Section 4.5. 7.3 Except as the Board may otherwise determine based on the circumstances at the time the distribution to the beneficiary is to commence: (a) If a Director should die after distribution of any account maintained for the Director has commenced, but before the entire balance of such account has been fully distributed, distributions will continue to be made from such account to the Director's designated beneficiary or contingent 9 beneficiary, in accordance with the distribution option in effect for such Account at the time of the Director's death. (b) If a Director should die before any distribution from an account maintained for the Director hereunder has been made to him or her, distribution of such account to the Director's designated beneficiary or contingent beneficiary shall be made, or shall commence, as soon as practicable after the Director's death, in accordance with the distribution option in effect for such account at the time of the Director's death. Amounts remaining to be paid, after the death of the Director, to the designated beneficiary and the contingent beneficiary, will be paid in a lump sum to the estate of the last of such persons to die. 7.4 Notwithstanding anything herein to the contrary, any account maintained for a Director hereunder may be distributed, in whole or in part, to such Director on any date earlier than the date on which distribution is to be made, or commence, pursuant to the Director's election if: (a) the Director requests early distribution, and (b) the Board, in its sole discretion, determines that early distribution is necessary to help the Director meet some severe financial need arising from circumstances which were beyond the Director's control and which were not foreseen by the Director at the time he or she made the election as to the date or dates for distribution from such account. A request by a Director for an early distribution shall be made in writing, shall set forth sufficient information as to the Director's needs for such distribution to enable the Board to take action on his or her request, and shall be mailed or delivered to the Company's Corporate Secretary. 8. Non-Assignment of Deferred Remuneration 8.1 A Director's rights to payments under this Plan shall not be subject to any manner to anticipation, alienation, sale, transfer (other than transfer by will or by the laws of descent and distribution, in the absence of a beneficiary designation), assignment, pledge, encumbrance, attachment or garnishment by creditors of the Director or his or her spouse or other beneficiary. 10 8.2 All amounts paid under the Plan, including the interest equivalents credited to a Director's memorandum account, are considered to be Remuneration. The crediting of interest equivalents is intended to preserve the value of the Remuneration so deferred for the Director. 11 EX-10.K 14 EXHIBIT 10K Exhibit 10-K JERSEY CENTRAL POWER AND LIGHT COMPANY SUPPLEMENTAL AND EXCESS BENEFITS PLAN As Amended, Effective August 1, 1996 TABLE OF CONTENTS Page Foreword 3 Section 1 - Definitions 3 Section 2 - Application and Basis of the Plan 7 Section 3 - Payment of Benefits 8 Section 4 - Administration 14 Section 5 - Amendment and Termination 15 JERSEY CENTRAL POWER AND LIGHT COMPANY SUPPLEMENTAL AND EXCESS BENEFITS PLAN (As amended effective August 1, 1996) Foreword Effective as of January l, 1988, Jersey Central Power & Light Company (referred to in this document as the "Company") established a supplemental pension plan for the benefit of certain of its employees. This Jersey Central Power & Light Company Supplemental and Excess Benefits Plan (the "Plan") is a continuation of that plan as adopted effective January 1, 1988. The Plan, as set forth herein, is applicable to all employees of the Company who meet the requirements described in this Plan and who are actively employed by the Company after August 1, 1996. The benefits of any employee who ceased employment with the Company, by retirement, death, or otherwise, prior to August 1, 1996 are determined in accordance with the terms of the applicable predecessor to this Plan as in effect at the time of such cessation of employment, except that the provisions of Section 1.11 are retroactive and apply to any employee who ceased employment on or after January 1, 1989. It is intended that the "excess benefits" provided under the Plan be an "excess benefits plan" as that term is defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and that the "supplemental benefits" provided under the Plan be a deferred compensation plan for "a select group of management or highly compensated employees" as that term is used in ERISA. One purpose of the Plan is to provide participants of the Jersey Central Power & Light Company Employee Pension Plan ("Pension Plan") and the Jersey Central Power & Light Company Plan For Retirement Annuities ("PRA") and their surviving spouses with the amount of company-provided benefits that would have been provided to them under the Pension Plan or the PRA but for the limitation on benefits imposed under Section 415 of the Internal Revenue Code, as amended. The second purpose of the Plan is to provide elected officers and certain other highly compensated employees of the Company and their surviving spouses with the amount of company-provided benefits that would have been provided to them under the Pension Plan but for the following: (a) the limitation on Earnings for purposes of the Pension Plan imposed by Section 401(a)(17) of such Code, as amended, and (b) the exclusion, from Earnings under the Pension Plan, of any compensation deferred under the Deferred Compensation Plan. Except to the extent otherwise indicated or inappropriate, the Pension Plan is incorporated by reference. 2 SECTION 1 Definitions 1.1 Except to the extent otherwise indicated, the definitions contained in Section l of the Pension Plan are applicable under the Plan. 1.2 Board of Directors: The term Board of Directors shall mean the Board of Directors of the Company. 1.3 Change in Control: The term Change in Control shall mean the occurrence during the term of the Plan of: (1) An acquisition (other than directly from GPU, Inc. (the "Corporation")) of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non- Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the board of directors of the Corporation (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the board of directors of the Corporation; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office 3 as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Corporation (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non- Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of the Corporation; or 4 (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 1.4 Company: The word Company shall have the meaning indicated in the Foreword. 1.5 Deferred Compensation Plan: The term Deferred Compensation Plan shall mean the GPU System Companies Deferred Compensation Plan, as adopted by the Company. 1.6 Earnings: The term Earnings shall mean an Employee's "Earnings" as defined in the Pension Plan. 1.7 Excess Benefit: The term Excess Benefit shall mean the excess, if any, of (i) each pension benefit which would be payable to an Employee or to the Employee's surviving spouse under the Pension Plan if the limitations on benefits imposed by Section 18.1 of the Pension Plan were not applicable over (ii) each pension benefit payable under the Pension Plan. 1.8 Incentive Compensation Plan: The term Incentive Compensation Plan shall mean the Company's Employee Incentive Compensation Plan or its Incentive Compensation Plan for Elected Officers or Annual Performance Award Plan. 1.9 Pension Plan: The term Pension Plan shall have the meaning indicated in the Foreword. 1.10 Plan: The term Plan shall have the meaning indicated in the Foreword. 5 1.11 Supplemental Benefit: The term Supplemental Benefit shall mean the excess, if any, of (i) each pension benefit that would be payable to an Employee or to an Employee's surviving spouse under the Pension Plan if all amounts of base compensation or Incentive Compensation Plan awards deferred under the Deferred Compensation Plan were included in Earnings (and if the limitations on benefits imposed by Section 18.1 of the Pension Plan and on Earnings imposed by Section 401(a)(17) of the Internal Revenue Code were not applicable) over (ii) the sum of (a) each pension benefit payable under the Pension Plan and (b) any Excess Benefit payable under this Plan. For purposes of clause (i) of this Section 1.11, any amount of base compensation deferred under the Deferred Compensation Plan shall be treated as Earnings for the period in which such amount would have been paid to the Employee in cash if the Employee had not elected to defer such amount, and the amount of any award made to an Employee under the Incentive Compensation Plan and deferred under the Deferred Compensation Plan shall be treated as Earnings for the period corresponding to the Performance Period for which such award is made to the Employee. No amount of base compensation so deferred, and no amount awarded under the Incentive Compensation Plan, shall be treated as Earnings for any period other than the period determined under the preceding sentence. For purposes of clause (i) of this Section 1.11, the amount of any additional years of Creditable Service determined in accordance with Section 5.9 of the Pension Plan will be recalculated by replacing the Employee's annual base salary rate of Earnings as of April 1, 1989 by (a) for purposes of calculating projected Basic Pensions, the product of (i) such rate before any reductions on account of the Deferred Compensation Plan times (ii) 1.0 plus the target award percentage as described under the Incentive Compensation Plan and (b) for purposes of calculating the accumulation of contributions of 2.25% or 2.10% of compensation, such rate before any reductions on account of the Deferred Compensation Plan. 6 SECTION 2 Application and Basis of the Plan 2.1 The Plan shall be applicable (i) in the case of the Excess Benefit, to each Employee described in Section 2.1 of the Pension Plan and (ii) in the case of the Supplemental Benefit, to each Employee described in clause (i) who is an elected officer of the Company and to each other Employee described in clause (i) who for any calendar year has Earnings (plus any Incentive Compensation Plan awards deferred) in excess of the amount of compensation for such year that can be taken into account for purposes of the Pension Plan pursuant to Section 401(a)(17) of the Code. 7 SECTION 3 Payment of Benefits 3.1 The Company shall pay to each Employee to whom this Plan is applicable, or to the surviving spouse of any such Employee, the Excess Benefit and/or the Supplemental Benefit determined for such Employee or surviving spouse under Sections 1.7 and 1.11 hereof. 3.2 (a) The Excess Benefit and/or Supplemental Benefit payable hereunder to an Employee or the Employee's surviving spouse shall commence to be paid: (i) on the first of the month following the Employee's retirement, if the Employee retires in accordance with Section 3.1, 3.2, 3.3 or 3.4 of the Pension Plan, (ii) on Normal Retirement Date, if the Employee becomes entitled to benefits in accordance with Section 3.5 of the Pension Plan, or (iii) in the case of a Benefit which becomes payable hereunder to an Employee's surviving spouse on account of the Employee's death before the Employee has received any Benefit payment hereunder, on the earliest date as of which payment of such spouse's Basic Pension under the applicable provisions of Section 9 of the Pension Plan could commence, without regard to any election by such spouse to defer the commencement of payment of such Basic Pension. (b) The Excess and/or Supplemental Benefit payable hereunder to the Employee shall be paid in the form of a single life annuity, unless the Employee is married on the date on which payment of such Benefit is to commence under Section 3.2(a) above, in which event it shall be paid in the same form as Option 2, as described in Section 10.1 of the Pension Plan, with the Employee's spouse as the beneficiary thereunder. (c) Notwithstanding the preceding provisions of this Section 3.2, an Employee may elect (i) to delay commencement of his or her Excess and Supplemental Benefits to a specified date after the date applicable under Section 3.2(a) but not later than the Employee's Normal Retirement Date, or (ii) in the case of any Employee who becomes entitled to benefits in accordance with Section 3.5 of the Pension Plan, to accelerate commencement of his or her Excess and Supplemental Benefits to a specified date before the date applicable under Section 3.2(a) but not earlier than the first day of the month immediately following his or 8 her 55th birthday, and/or (iii) to be paid his or her Excess and Supplemental Benefits in any form permitted (without regard to any requirements for spousal consent) under the Pension Plan other than the form applicable under Section 3.2(b). Any such election shall be made in writing, on a form furnished to the Employee for such purpose by the Administrative Committee. The form shall be signed by the Employee and delivered to the Administrative Committee. An election under this Section 3.2(c) shall not be effective unless received by the Administrative Committee at least twenty-four months prior to the Employee's retirement or other termination of employment. (d) If payment of Excess and/or Supplemental Benefits commences earlier or later than payment of Pension Plan benefits, the amount of the Excess and/or Supplemental Benefits to be paid hereunder shall be determined as though payment of Pension Plan benefits commenced on the same date as payment of such Benefits commences, except that no increase in the dollar limitation of section 415(b)(1)(A) of the Code occurring after payment of Pension Plan benefits commences shall be taken into account. (e) If Excess and/or Supplemental Benefits commence to be paid on or after the date Pension Plan benefits commence to be paid, the amount of Excess and/or Supplemental Benefits to be paid hereunder shall be determined in accordance with the following additional rules: (i) determine the Employee's Excess and/or Supplemental Benefits as though such Benefits were payable in the same form, and with the same beneficiary, if any, as Pension Plan benefits, and disregarding any change in marital status occurring subsequent to the date on which payment of Pension Plan benefits commence, (ii) if the Employee's Pension Plan benefits are payable in accordance with Option 1 or 2, as described in Section 10.1 of the Pension Plan, divide the amount determined in (i) by the complement of the reduction percentage applied to Pension Plan benefits in accordance with such Section 10.1, to convert such amount into a benefit payable in the form of a single life annuity, and (iii) if payment of the Employee's Excess and/or Supplemental Benefits is to be made in a form other than as a single life annuity, reduce the amount determined in (ii) by the reduction percentage that would be applicable under Section 10.1 of the Pension 9 Plan to an annuity payable thereunder to the Employee in the same form as the form in which payment of the Employee's Excess and/or Supplemental Benefits is to be made hereunder and with the same beneficiary. If Excess and/or Supplemental Benefits commence to be paid before Pension Plan benefits commence to be paid, the amount of such Benefits to be paid hereunder shall be determined as though Pension Plan benefits were being paid at the same time and in the same form as Excess and/or Supplemental Benefits, until such time as Pension Plan benefits commence to be paid, at which time the amount of Excess and/or Supplemental Benefits thereafter to be paid hereunder shall be adjusted, in a manner consistent with the foregoing paragraph, to the extent necessary to reflect any difference in the form of payment for the Employee's Pension Plan benefits and the form of payment for his or her Excess and/or Supplemental Benefits. (f) In determining the amount of the Excess and/or Supplemental Benefit payable hereunder to an Employee or the Employee's surviving spouse, there shall be taken into account any increase in the amount of the pension benefit that is payable, pursuant to Section 6 or Section 9 of the Pension Plan, to the Employee or his or her surviving spouse for the first 12 months during which such pension benefit is payable. (g) If, pursuant to Section 3.2(b) or (c) above, an Employee's Excess and/or Supplemental Benefit is otherwise required to be paid in the same form as Option 1 or Option 2 as described in Section 10.1 of the Pension Plan, and if the person designated by the Employee as his or her beneficiary for purposes of such payment form should die at any time prior to the fifth anniversary of the date on which the Employee's Benefits hereunder commence to be paid (the Employee's Benefit Starting Date), the Benefit amounts payable to the Employee hereunder after the date of such beneficiary's death shall be equal to the Benefit amounts that would have been payable to the Employee hereunder after such date if such Benefit amounts had been payable to the Employee, from his or her Benefit Starting Date, in the form of a single life annuity. (h) Notwithstanding any other provision of the Plan to the contrary or any other optional form of distribution otherwise elected, each Employee shall be permitted to make a special distribution election to have his or her Excess and/or Supplemental Benefit distributed in the form of a single lump sum payment in the event of the Employee's termination of employment (1) by the Company (A) within six (6) months prior to a Change in Control or (B) prior to a Change in Control but which the Employee reasonably demonstrates (i) was at the request of a third party who has 10 indicated an intention or taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with, or in anticipation of a Change in Control which has been threatened or proposed and which actually occurs, or (2) for any reason within the two (2) year period following a Change in Control; provided, however, that such election shall be effective only if it is made either (I) at least twenty-four (24) months prior to such termination of the Employee's employment, or (II) if such termination of employment constitutes an "Involuntary Termination" as defined below, at least one year prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made at any time; provided, however, that any such revocation or new election shall be effective only if it is made within the election period specified in clause (I) or (II) of the preceding sentence. Any special election, or revocation of a special election, that may be made hereunder shall be made in writing, on a form furnished to the Employee for such purpose by the Administrative Committee. The lump sum payment to be made hereunder to an Employee shall be in an amount that is Actuarially Equivalent (as defined in the Pension Plan and determined as of the date of the Employee's termination of employment) to the Excess and/or Supplemental Benefit that otherwise would be payable hereunder to the Employee if (x) payment of the Employee's Excess and/or Supplemental Benefit and the benefits payable to the Employee under the Pension Plan were to commence on the Employee's Normal Retirement Date (as defined in the Pension Plan) or, if earlier, on the earliest date as of which the Employee could elect to have payment of his or her benefits under the Pension Plan commence, (y) the Employee's Excess and/or Supplemental Benefit were payable in the form of a single life annuity, and (z) the Employee's benefits under the Pension Plan were payable either (1) in the same form as Option 2 as described in Section 10.1 of the Pension Plan with the Employee's spouse as the beneficiary thereunder, if the Employee is married on the date of his or her termination of employment, or (2) in the form of a single life annuity, if the Employee is not married on such date. The lump sum payment to be made hereunder to the surviving spouse of an Employee shall be in an amount that is Actuarially Equivalent (as defined in the Pension Plan and determined as of the date of the Employee's death) to the Excess and/or Supplemental Benefit that otherwise would be payable hereunder to such spouse by reason of the Employee's death. The lump sum payment to be made hereunder with respect to any Employee shall be made by no later than 30 days following the date of the Employee's termination of employment. 11 For purposes of this Section 3.2(h), an "Involuntary Termination" shall mean the termination of an Employee's employment (A) as a result of the Employee's death, (B) by the Company, for any reason, or (C) by the Employee, for "Good Reason" as defined below. For purposes of the paragraph above, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (A) a change in the Employee's status, title, position or responsibilities (including reporting responsibilities) which, in the Employee's reasonable judgement, represents an adverse change from his or her status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Employee of any duties or responsibilities which, in the Employee's reasonable judgement, are inconsistent with his or her status, title, position or responsibilities; or any removal of the Employee from or failure to reappoint or reelect him or her to any of such offices or positions, other than in connection with the termination of his or her employment for disability, for cause, or by the Employee other than for Good Reason; (B) a reduction in the Employee's annual base salary below the rate of the Employee's annual base salary in effect as of the date of the Change in Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Employee; (C) the relocation of the offices of the Company at which the Employee is principally employed to a location more than twenty-five (25) miles from the location of such offices immediately prior to the Change in Control, or the Company's requiring the Employee to be based anywhere other than such offices, except to the extent the Employee was not previously assigned to a principal location and except for required travel on the Company's business to an extent substantially consistent with the Employee's business travel obligations at the time of the Change in Control; (D) the failure by the Company to pay to the Employee any amount of the Employee's current compensation, or any amount payable under any deferred compensation program of the Company in which the Employee participated, within seven (7) days of the date on which payment of such amount is due; or 12 (E) the failure by the Company to (1) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which the Employee was participating immediately prior to the Change in Control unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Employee or (2) provide the Employee with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under all other compensation or employee benefit plans, programs and practices in which the Employee was participating immediately prior to the Change in Control. Any event or condition described in subparagraph (A) through (E) above which occurs (1) within six (6) months prior to a Change in Control or (2) prior to a Change in Control but which (x) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control, or (y) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, shall constitute Good Reason for purposes of this Section 3.2(h) notwithstanding that it occurred prior to a Change in Control. 3.3 Each Employee entitled to benefits under the Plan shall have the status of a mere unsecured creditor of the Company. The Plan shall constitute a mere promise by the Company to make payments in the future of the benefits provided for herein. It is intended that the arrangements reflected in this Plan be treated as unfunded for tax purposes and for purposes of Title I of ERISA. 3.4 An Employee's rights to benefit payments under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Employee or his or her spouse or other beneficiary. 13 SECTION 4 Administration 4.1 The Plan shall be administered by an Administrative Committee. The Administrative Committee shall consist of such persons as the Company from time to time may appoint to serve thereon. Action to appoint or remove members of the Committee may be taken by the Company either by resolution duly adopted by its Board of Directors, or by an instrument in writing executed by an officer of the Company to whom authority to appoint or remove members of the Committee has been delegated pursuant to a resolution duly adopted by the Company's Board of Directors. 4.2 The Administrative Committee shall have the power to interpret the Plan, to decide all questions that may arise as to the construction or application of any of its provisions, and make all determinations as to the rights of Employees or other persons to benefits under the Plan. Any determination made by the Administrative Committee prior to a Change in Control as to the interpretation, construction or application of the Plan, or as to the rights of any Employee or other persons to benefits under the Plan, shall be conclusive and binding on all parties. Any such determination made by the Administrative Committee after the occurrence of a Change in Control that denies, in whole or in part, any claim made by any individual for benefits hereunder shall be subject to judicial review, under a "de novo", rather than a deferential, standard. 4.3 Each member of the Administrative Committee shall be indemnified and held harmless by the Company for any liability or loss (including legal fees or other expenses of litigation) arising out of or in connection with his or her services to the Plan in such capacity, to the extent that such liability or loss (a) is not insured against under any applicable policy of insurance (whether or not maintained by the Company) and (b) is not determined to be due to the gross negligence or willful misconduct of such member or other person. 14 SECTION 5 Amendment and Termination 5.1 Subject to Section 5.3, the Company may amend the Plan at any time. Any such amendment may be made with retroactive effect to the extent not prohibited by law. Action to amend the Plan may be taken by the Company either by resolution duly adopted by the Company's Board of Directors, or by an instrument in writing executed by an officer of the Company to whom authority to adopt or approve amendments to the Plan has been delegated pursuant to a resolution duly adopted by the Company's Board of Directors. 5.2 Subject to the provisions of Section 5.3, the Plan may be terminated at any time by the Board of Directors. 5.3 Notwithstanding the provisions of Sections 5.1 and 5.2, (a) no amendment to or termination of the Plan shall impair any rights to benefits which have accrued hereunder and (b) no amendment to Section 3.2(h), Section 4.2 or to this Section 5.3, nor any termination of the Plan, effectuated (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, shall be effective if the amendment or termination adversely affects the rights of any Employee under the Plan. 15 EX-10.L 15 EXHIBIT 10L Exhibit 10-L METROPOLITAN EDISON COMPANY SUPPLEMENTAL AND EXCESS BENEFITS PLAN As Amended, Effective August 1, 1996 TABLE OF CONTENTS Page Foreword 3 Section 1 - Definitions 3 Section 2 - Application and Basis of the Plan 7 Section 3 - Payment of Benefits 8 Section 4 - Administration 14 Section 5 - Amendment and Termination 15 METROPOLITAN EDISON COMPANY SUPPLEMENTAL AND EXCESS BENEFITS PLAN (As amended effective August 1, 1996) Foreword Effective as of January l, 1988, Metropolitan Edison Company (referred to in this document as the "Company") established a supplemental pension plan for the benefit of certain of its employees. This Metropolitan Edison Company Supplemental and Excess Benefits Plan (the "Plan") is a continuation of that plan as adopted effective January 1, 1988. The Plan, as set forth herein, is applicable to all employees of the Company who meet the requirements described in this Plan and who are actively employed by the Company after August 1, 1996. The benefits of any employee who ceased employment with the Company, by retirement, death, or otherwise, prior to August 1, 1996 are determined in accordance with the terms of the applicable predecessor to this Plan as in effect at the time of such cessation of employment, except that the provisions of Section 1.11 are retroactive and apply to any employee who ceased employment on or after January 1, 1989. It is intended that the "excess benefits" provided under the Plan be an "excess benefits plan" as that term is defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and that the "supplemental benefits" provided under the Plan be a deferred compensation plan for "a select group of management or highly compensated employees" as that term is used in ERISA. One purpose of the Plan is to provide participants of the Metropolitan Edison Company Employee Pension Plan ("Pension Plan") and the Metropolitan Edison Company Plan For Retirement Annuities ("PRA") and their surviving spouses with the amount of company-provided benefits that would have been provided to them under the Pension Plan or the PRA but for the limitation on benefits imposed under Section 415 of the Internal Revenue Code, as amended. The second purpose of the Plan is to provide elected officers and certain other highly compensated employees of the Company and their surviving spouses with the amount of company-provided benefits that would have been provided to them under the Pension Plan but for the following: (a) the limitation on Earnings for purposes of the Pension Plan imposed by Section 401(a)(17) of such Code, as amended, and (b) the exclusion, from Earnings under the Pension Plan, of any compensation deferred under the Deferred Compensation Plan. Except to the extent otherwise indicated or inappropriate, the Pension Plan is incorporated by reference. 2 SECTION 1 Definitions 1.1 Except to the extent otherwise indicated, the definitions contained in Section l of the Pension Plan are applicable under the Plan. 1.2 Board of Directors: The term Board of Directors shall mean the Board of Directors of the Company. 1.3 Change in Control: The term Change in Control shall mean the occurrence during the term of the Plan of: (1) An acquisition (other than directly from GPU, Inc. (the "Corporation")) of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non- Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the board of directors of the Corporation (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the board of directors of the Corporation; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the 3 Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Corporation (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non- Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. 4 (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 1.4 Company: The word Company shall have the meaning indicated in the Foreword. 1.5 Deferred Compensation Plan: The term Deferred Compensation Plan shall mean the GPU System Companies Deferred Compensation Plan, as adopted by the Company. 1.6 Earnings: The term Earnings shall mean an Employee's "Earnings" as defined in the Pension Plan. 1.7 Excess Benefit: The term Excess Benefit shall mean the excess, if any, of (i) each pension benefit which would be payable to an Employee or to the Employee's surviving spouse under the Pension Plan if the limitations on benefits imposed by Section 18.1 of the Pension Plan were not applicable over (ii) each pension benefit payable under the Pension Plan. 1.8 Incentive Compensation Plan: The term Incentive Compensation Plan shall mean the Company's Employee Incentive Compensation Plan or its Incentive Compensation Plan for Elected Officers or Annual Performance Award Plan. 1.9 Pension Plan: The term Pension Plan shall have the meaning indicated in the Foreword. 5 1.10 Plan: The term Plan shall have the meaning indicated in the Foreword. 1.11 Supplemental Benefit: The term Supplemental Benefit shall mean the excess, if any, of (i) each pension benefit that would be payable to an Employee or to an Employee's surviving spouse under the Pension Plan if all amounts of base compensation or Incentive Compensation Plan awards deferred under the Deferred Compensation Plan were included in Earnings (and if the limitations on benefits imposed by Section 18.1 of the Pension Plan and on Earnings imposed by Section 401(a)(17) of the Internal Revenue Code were not applicable) over (ii) the sum of (a) each pension benefit payable under the Pension Plan and (b) any Excess Benefit payable under this Plan. For purposes of clause (i) of this Section 1.11, any amount of base compensation deferred under the Deferred Compensation Plan shall be treated as Earnings for the period in which such amount would have been paid to the Employee in cash if the Employee had not elected to defer such amount, and the amount of any award made to an Employee under the Incentive Compensation Plan and deferred under the Deferred Compensation Plan shall be treated as Earnings for the period corresponding to the Performance Period for which such award is made to the Employee. No amount of base compensation so deferred, and no amount awarded under the Incentive Compensation Plan, shall be treated as Earnings for any period other than the period determined under the preceding sentence. For purposes of clause (i) of this Section 1.11, the amount of any additional years of Creditable Service determined in accordance with Section 5.9 of the Pension Plan will be recalculated by replacing the Employee's annual base salary rate of Earnings as of April 1, 1989 by (a) for purposes of calculating projected Basic Pensions, the product of (i) such rate before any reductions on account of the Deferred Compensation Plan times (ii) 1.0 plus the target award percentage as described under the Incentive Compensation Plan and (b) for purposes of calculating the accumulation of contributions of 2.25% or 2.10% of compensation, such rate before any reductions on account of the Deferred Compensation Plan. 6 SECTION 2 Application and Basis of the Plan 2.1 The Plan shall be applicable (i) in the case of the Excess Benefit, to each Employee described in Section 2.1 of the Pension Plan and (ii) in the case of the Supplemental Benefit, to each Employee described in clause (i) who is an elected officer of the Company and to each other Employee described in clause (i) who for any calendar year has Earnings (plus any Incentive Compensation Plan awards deferred) in excess of the amount of compensation for such year that can be taken into account for purposes of the Pension Plan pursuant to Section 401(a)(17) of the Code. 7 SECTION 3 Payment of Benefits 3.1 The Company shall pay to each Employee to whom this Plan is applicable, or to the surviving spouse of any such Employee, the Excess Benefit and/or the Supplemental Benefit determined for such Employee or surviving spouse under Sections 1.7 and 1.11 hereof. 3.2 (a) The Excess Benefit and/or Supplemental Benefit payable hereunder to an Employee or the Employee's surviving spouse shall commence to be paid: (i) on the first of the month following the Employee's retirement, if the Employee retires in accordance with Section 3.1, 3.2, 3.3 or 3.4 of the Pension Plan, (ii) on Normal Retirement Date, if the Employee becomes entitled to benefits in accordance with Section 3.5 of the Pension Plan, or (iii) in the case of a Benefit which becomes payable hereunder to an Employee's surviving spouse on account of the Employee's death before the Employee has received any Benefit payment hereunder, on the earliest date as of which payment of such spouse's Basic Pension under the applicable provisions of Section 9 of the Pension Plan could commence, without regard to any election by such spouse to defer the commencement of payment of such Basic Pension. (b) The Excess and/or Supplemental Benefit payable hereunder to the Employee shall be paid in the form of a single life annuity, unless the Employee is married on the date on which payment of such Benefit is to commence under Section 3.2(a) above, in which event it shall be paid in the same form as Option 2, as described in Section 10.1 of the Pension Plan, with the Employee's spouse as the beneficiary thereunder. (c) Notwithstanding the preceding provisions of this Section 3.2, an Employee may elect (i) to delay commencement of his or her Excess and Supplemental Benefits to a specified date after the date applicable under Section 3.2(a) but not later than the Employee's Normal Retirement Date, or (ii) in the case of any Employee who becomes entitled to benefits in accordance with Section 3.5 of the Pension Plan, to accelerate commencement of his or her Excess and Supplemental Benefits to a specified date before the date applicable under Section 3.2(a) but not earlier 8 than the first day of the month immediately following his or her 55th birthday, and/or (iii) to be paid his or her Excess and Supplemental Benefits in any form permitted (without regard to any requirements for spousal consent) under the Pension Plan other than the form applicable under Section 3.2(b). Any such election shall be made in writing, on a form furnished to the Employee for such purpose by the Administrative Committee. The form shall be signed by the Employee and delivered to the Administrative Committee. An election under this Section 3.2(c) shall not be effective unless received by the Administrative Committee at least twenty-four months prior to the Employee's retirement or other termination of employment. (d) If payment of Excess and/or Supplemental Benefits commences earlier or later than payment of Pension Plan benefits, the amount of the Excess and/or Supplemental Benefits to be paid hereunder shall be determined as though payment of Pension Plan benefits commenced on the same date as payment of such Benefits commences, except that no increase in the dollar limitation of section 415(b)(1)(A) of the Code occurring after payment of Pension Plan benefits commences shall be taken into account. (e) If Excess and/or Supplemental Benefits commence to be paid on or after the date Pension Plan benefits commence to be paid, the amount of Excess and/or Supplemental Benefits to be paid hereunder shall be determined in accordance with the following additional rules: (i) determine the Employee's Excess and/or Supplemental Benefits as though such Benefits were payable in the same form, and with the same beneficiary, if any, as Pension Plan benefits, and disregarding any change in marital status occurring subsequent to the date on which payment of Pension Plan benefits commence, (ii) if the Employee's Pension Plan benefits are payable in accordance with Option 1 or 2, as described in Section 10.1 of the Pension Plan, divide the amount determined in (i) by the complement of the reduction percentage applied to Pension Plan benefits in accordance with such Section 10.1, to convert such amount into a benefit payable in the form of a single life annuity, and (iii) if payment of the Employee's Excess and/or Supplemental Benefits is to be made in a form other than as a single life annuity, reduce the amount determined in (ii) by the reduction percentage that would be applicable under Section 10.1 of the Pension Plan to an annuity payable thereunder to the Employee in the same form as the form in 9 which payment of the Employee's Excess and/or Supplemental Benefits is to be made hereunder and with the same beneficiary. If Excess and/or Supplemental Benefits commence to be paid before Pension Plan benefits commence to be paid, the amount of such Benefits to be paid hereunder shall be determined as though Pension Plan benefits were being paid at the same time and in the same form as Excess and/or Supplemental Benefits, until such time as Pension Plan benefits commence to be paid, at which time the amount of Excess and/or Supplemental Benefits thereafter to be paid hereunder shall be adjusted, in a manner consistent with the foregoing paragraph, to the extent necessary to reflect any difference in the form of payment for the Employee's Pension Plan benefits and the form of payment for his or her Excess and/or Supplemental Benefits. (f) In determining the amount of the Excess and/or Supplemental Benefit payable hereunder to an Employee or the Employee's surviving spouse, there shall be taken into account any increase in the amount of the pension benefit that is payable, pursuant to Section 6 or Section 9 of the Pension Plan, to the Employee or his or her surviving spouse for the first 12 months during which such pension benefit is payable. (g) If, pursuant to Section 3.2(b) or (c) above, an Employee's Excess and/or Supplemental Benefit is otherwise required to be paid in the same form as Option 1 or Option 2 as described in Section 10.1 of the Pension Plan, and if the person designated by the Employee as his or her beneficiary for purposes of such payment form should die at any time prior to the fifth anniversary of the date on which the Employee's Benefits hereunder commence to be paid (the Employee's Benefit Starting Date), the Benefit amounts payable to the Employee hereunder after the date of such beneficiary's death shall be equal to the Benefit amounts that would have been payable to the Employee hereunder after such date if such Benefit amounts had been payable to the Employee, from his or her Benefit Starting Date, in the form of a single life annuity. (h) Notwithstanding any other provision of the Plan to the contrary or any other optional form of distribution otherwise elected, each Employee shall be permitted to make a special distribution election to have his or her Excess and/or Supplemental Benefit distributed in the form of a single lump sum payment in the event of the Employee's termination of employment (1) by the Company (A) within six (6) months prior to a Change in Control or (B) prior to a Change in Control but which the Employee reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated 10 to effect a Change in Control or (ii) otherwise arose in connection with, or in anticipation of a Change in Control which has been threatened or proposed and which actually occurs, or (2) for any reason within the two (2) year period following a Change in Control; provided, however, that such election shall be effective only if it is made either (I) at least twenty-four (24) months prior to such termination of the Employee's employment, or (II) if such termination of employment constitutes an "Involuntary Termination" as defined below, at least one year prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made at any time; provided, however, that any such revocation or new election shall be effective only if it is made within the election period specified in clause (I) or (II) of the preceding sentence. Any special election, or revocation of a special election, that may be made hereunder shall be made in writing, on a form furnished to the Employee for such purpose by the Administrative Committee. The lump sum payment to be made hereunder to an Employee shall be in an amount that is Actuarially Equivalent (as defined in the Pension Plan and determined as of the date of the Employee's termination of employment) to the Excess and/or Supplemental Benefit that otherwise would be payable hereunder to the Employee if (x) payment of the Employee's Excess and/or Supplemental Benefit and the benefits payable to the Employee under the Pension Plan were to commence on the Employee's Normal Retirement Date (as defined in the Pension Plan) or, if earlier, on the earliest date as of which the Employee could elect to have payment of his or her benefits under the Pension Plan commence, (y) the Employee's Excess and/or Supplemental Benefit were payable in the form of a single life annuity, and (z) the Employee's benefits under the Pension Plan were payable either (1) in the same form as Option 2 as described in Section 10.1 of the Pension Plan with the Employee's spouse as the beneficiary thereunder, if the Employee is married on the date of his or her termination of employment, or (2) in the form of a single life annuity, if the Employee is not married on such date. The lump sum payment to be made hereunder to the surviving spouse of an Employee shall be in an amount that is Actuarially Equivalent (as defined in the Pension Plan and determined as of the date of the Employee's death) to the Excess and/or Supplemental Benefit that otherwise would be payable hereunder to such spouse by reason of the Employee's death. The lump sum payment to be made hereunder with respect to any Employee shall be made by no later than 30 days following the date of the Employee's termination of employment. 11 For purposes of this Section 3.2(h), an "Involuntary Termination" shall mean the termination of an Employee's employment (A) as a result of the Employee's death, (B) by the Company, for any reason, or (C) by the Employee, for "Good Reason" as defined below. For purposes of the paragraph above, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (A) a change in the Employee's status, title, position or responsibilities (including reporting responsibilities) which, in the Employee's reasonable judgement, represents an adverse change from his or her status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Employee of any duties or responsibilities which, in the Employee's reasonable judgement, are inconsistent with his or her status, title, position or responsibilities; or any removal of the Employee from or failure to reappoint or reelect him or her to any of such offices or positions, other than in connection with the termination of his or her employment for disability, for cause, or by the Employee other than for Good Reason; (B) a reduction in the Employee's annual base salary below the rate of the Employee's annual base salary in effect as of the date of the Change in Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Employee; (C) the relocation of the offices of the Company at which the Employee is principally employed to a location more than twenty-five (25) miles from the location of such offices immediately prior to the Change in Control, or the Company's requiring the Employee to be based anywhere other than such offices, except to the extent the Employee was not previously assigned to a principal location and except for required travel on the Company's business to an extent substantially consistent with the Employee's business travel obligations at the time of the Change in Control; (D) the failure by the Company to pay to the Employee any amount of the Employee's current compensation, or any amount payable under any deferred compensation program of the Company in which the Employee participated, within seven (7) days of the date on which payment of such amount is due; or 12 (E) the failure by the Company to (1) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which the Employee was participating immediately prior to the Change in Control unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Employee or (2) provide the Employee with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under all other compensation or employee benefit plans, programs and practices in which the Employee was participating immediately prior to the Change in Control. Any event or condition described in subparagraph (A) through (E) above which occurs (1) within six (6) months prior to a Change in Control or (2) prior to a Change in Control but which (x) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control, or (y) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, shall constitute Good Reason for purposes of this Section 3.2(h) notwithstanding that it occurred prior to a Change in Control. 3.3 Each Employee entitled to benefits under the Plan shall have the status of a mere unsecured creditor of the Company. The Plan shall constitute a mere promise by the Company to make payments in the future of the benefits provided for herein. It is intended that the arrangements reflected in this Plan be treated as unfunded for tax purposes and for purposes of Title I of ERISA. 3.4 An Employee's rights to benefit payments under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Employee or his or her spouse or other beneficiary. 13 SECTION 4 Administration 4.1 The Plan shall be administered by an Administrative Committee. The Administrative Committee shall consist of such persons as the Company from time to time may appoint to serve thereon. Action to appoint or remove members of the Committee may be taken by the Company either by resolution duly adopted by its Board of Directors, or by an instrument in writing executed by an officer of the Company to whom authority to appoint or remove members of the Committee has been delegated pursuant to a resolution duly adopted by the Company's Board of Directors. 4.2 The Administrative Committee shall have the power to interpret the Plan, to decide all questions that may arise as to the construction or application of any of its provisions, and make all determinations as to the rights of Employees or other persons to benefits under the Plan. Any determination made by the Administrative Committee prior to a Change in Control as to the interpretation, construction or application of the Plan, or as to the rights of any Employee or other persons to benefits under the Plan, shall be conclusive and binding on all parties. Any such determination made by the Administrative Committee after the occurrence of a Change in Control that denies, in whole or in part, any claim made by any individual for benefits hereunder shall be subject to judicial review, under a "de novo", rather than a deferential, standard. 4.3 Each member of the Administrative Committee shall be indemnified and held harmless by the Company for any liability or loss (including legal fees or other expenses of litigation) arising out of or in connection with his or her services to the Plan in such capacity, to the extent that such liability or loss (a) is not insured against under any applicable policy of insurance (whether or not maintained by the Company) and (b) is not determined to be due to the gross negligence or willful misconduct of such member or other person. 14 SECTION 5 Amendment and Termination 5.1 Subject to Section 5.3, the Company may amend the Plan at any time. Any such amendment may be made with retroactive effect to the extent not prohibited by law. Action to amend the Plan may be taken by the Company either by resolution duly adopted by the Company's Board of Directors, or by an instrument in writing executed by an officer of the Company to whom authority to adopt or approve amendments to the Plan has been delegated pursuant to a resolution duly adopted by the Company's Board of Directors. 5.2 Subject to the provisions of Section 5.3, the Plan may be terminated at any time by the Board of Directors. 5.3 Notwithstanding the provisions of Sections 5.1 and 5.2, (a) no amendment to or termination of the Plan shall impair any rights to benefits which have accrued hereunder and (b) no amendment to Section 3.2(h), Section 4.2 or to this Section 5.3, nor any termination of the Plan, effectuated (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, shall be effective if the amendment or termination adversely affects the rights of any Employee under the Plan. 15 EX-10.M 16 EXHIBIT 10M Exhibit 10-M PENNSYLVANIA ELECTRIC COMPANY SUPPLEMENTAL AND EXCESS BENEFITS PLAN As Amended, Effective August 1, 1996 TABLE OF CONTENTS Page Foreword 3 Section 1 - Definitions 4 Section 2 - Application and Basis of the Plan 7 Section 3 - Payment of Benefits 8 Section 4 - Administration 14 Section 5 - Amendment and Termination 14 PENNSYLVANIA ELECTRIC COMPANY SUPPLEMENTAL AND EXCESS BENEFITS PLAN (As amended effective August 1, 1996) Foreword Effective as of January l, 1988, Pennsylvania Electric Company (referred to in this document as the "Company") established a supplemental pension plan for the benefit of certain of its employees. This Pennsylvania Electric Company Supplemental and Excess Benefits Plan (the "Plan") is a continuation of that plan as adopted effective January 1, 1988. The Plan, as set forth herein, is applicable to all employees of the Company who meet the requirements described in this Plan and who are actively employed by the Company after August 1, 1996. The benefits of any employee who ceased employment with the Company, by retirement, death, or otherwise, prior to August 1, 1996 are determined in accordance with the terms of the applicable predecessor to this Plan as in effect at the time of such cessation of employment, except that the provisions of Section 1.11 are retroactive and apply to any employee who ceased employment on or after January 1, 1989. It is intended that the "excess benefits" provided under the Plan be an "excess benefits plan" as that term is defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and that the "supplemental benefits" provided under the Plan be a deferred compensation plan for "a select group of management or highly compensated employees" as that term is used in ERISA. One purpose of the Plan is to provide participants of the Pennsylvania Electric Company Employee Pension Plan ("Pension Plan") and the Pennsylvania Electric Company Plan For Retirement Annuities ("PRA") and their surviving spouses with the amount of company-provided benefits that would have been provided to them under the Pension Plan or the PRA but for the limitation on benefits imposed under Section 415 of the Internal Revenue Code, as amended. The second purpose of the Plan is to provide elected officers and certain other highly compensated employees of the Company and their surviving spouses with the amount of company-provided benefits that would have been provided to them under the Pension Plan but for the following: (a) the limitation on Earnings for purposes of the Pension Plan imposed by Section 401(a)(17) of such Code, as amended, and (b) the exclusion, from Earnings under the Pension Plan, of any compensation deferred under the Deferred Compensation Plan. Except to the extent otherwise indicated or inappropriate, the Pension Plan is incorporated by reference. SECTION 1 Definitions 1.1 Except to the extent otherwise indicated, the definitions contained in Section l of the Pension Plan are applicable under the Plan. 1.2 Board of Directors: The term Board of Directors shall mean the Board of Directors of the Company. 1.3 Change in Control: The term Change in Control shall mean the occurrence during the term of the Plan of: (1) An acquisition (other than directly from GPU, Inc. (the "Corporation")) of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non- Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the board of directors of the Corporation (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the board of directors of the Corporation; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Corporation (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non- Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 1.4 Company: The word Company shall have the meaning indicated in the Foreword. 1.5 Deferred Compensation Plan: The term Deferred Compensation Plan shall mean the GPU System Companies Deferred Compensation Plan, as adopted by the Company. 1.6 Earnings: The term Earnings shall mean an Employee's "Earnings" as defined in the Pension Plan. 1.7 Excess Benefit: The term Excess Benefit shall mean the excess, if any, of (i) each pension benefit which would be payable to an Employee or to the Employee's surviving spouse under the Pension Plan if the limitations on benefits imposed by Section 18.1 of the Pension Plan were not applicable over (ii) each pension benefit payable under the Pension Plan. 1.8 Incentive Compensation Plan: The term Incentive Compensation Plan shall mean the Company's Employee Incentive Compensation Plan or its Incentive Compensation Plan for Elected Officers or Annual Performance Award Plan. 1.9 Pension Plan: The term Pension Plan shall have the meaning indicated in the Foreword. 1.10 Plan: The term Plan shall have the meaning indicated in the Foreword. 1.11 Supplemental Benefit: The term Supplemental Benefit shall mean the excess, if any, of (i) each pension benefit that would be payable to an Employee or to an Employee's surviving spouse under the Pension Plan if all amounts of base compensation or Incentive Compensation Plan awards deferred under the Deferred Compensation Plan were included in Earnings (and if the limitations on benefits imposed by Section 18.1 of the Pension Plan and on Earnings imposed by Section 401(a)(17) of the Internal Revenue Code were not applicable) over (ii) the sum of (a) each pension benefit payable under the Pension Plan and (b) any Excess Benefit payable under this Plan. For purposes of clause (i) of this Section 1.11, any amount of base compensation deferred under the Deferred Compensation Plan shall be treated as Earnings for the period in which such amount would have been paid to the Employee in cash if the Employee had not elected to defer such amount, and the amount of any award made to an Employee under the Incentive Compensation Plan and deferred under the Deferred Compensation Plan shall be treated as Earnings for the period corresponding to the Performance Period for which such award is made to the Employee. No amount of base compensation so deferred, and no amount awarded under the Incentive Compensation Plan, shall be treated as Earnings for any period other than the period determined under the preceding sentence. For purposes of clause (i) of this Section 1.11, the amount of any additional years of Creditable Service determined in accordance with Section 5.9 of the Pension Plan will be recalculated by replacing the Employee's annual base salary rate of Earnings as of April 1, 1989 by (a) for purposes of calculating projected Basic Pensions, the product of (i) such rate before any reductions on account of the Deferred Compensation Plan times (ii) 1.0 plus the target award percentage as described under the Incentive Compensation Plan and (b) for purposes of calculating the accumulation of contributions of 2.25% or 2.10% of compensation, such rate before any reductions on account of the Deferred Compensation Plan. SECTION 2 Application and Basis of the Plan 2.1 The Plan shall be applicable (i) in the case of the Excess Benefit, to each Employee described in Section 2.1 of the Pension Plan and (ii) in the case of the Supplemental Benefit, to each Employee described in clause (i) who is an elected officer of the Company and to each other Employee described in clause (i) who for any calendar year has Earnings (plus any Incentive Compensation Plan awards deferred) in excess of the amount of compensation for such year that can be taken into account for purposes of the Pension Plan pursuant to Section 401(a)(17) of the Code. SECTION 3 Payment of Benefits 3.1 The Company shall pay to each Employee to whom this Plan is applicable, or to the surviving spouse of any such Employee, the Excess Benefit and/or the Supplemental Benefit determined for such Employee or surviving spouse under Sections 1.7 and 1.11 hereof. 3.2 (a) The Excess Benefit and/or Supplemental Benefit payable hereunder to an Employee or the Employee's surviving spouse shall commence to be paid: (i) on the first of the month following the Employee's retirement, if the Employee retires in accordance with Section 3.1, 3.2, 3.3 or 3.4 of the Pension Plan, (ii) on Normal Retirement Date, if the Employee becomes entitled to benefits in accordance with Section 3.5 of the Pension Plan, or (iii) in the case of a Benefit which becomes payable hereunder to an Employee's surviving spouse on account of the Employee's death before the Employee has received any Benefit payment hereunder, on the earliest date as of which payment of such spouse's Basic Pension under the applicable provisions of Section 9 of the Pension Plan could commence, without regard to any election by such spouse to defer the commencement of payment of such Basic Pension. (b) The Excess and/or Supplemental Benefit payable hereunder to the Employee shall be paid in the form of a single life annuity, unless the Employee is married on the date on which payment of such Benefit is to commence under Section 3.2(a) above, in which event it shall be paid in the same form as Option 2, as described in Section 10.1 of the Pension Plan, with the Employee's spouse as the beneficiary thereunder. (c) Notwithstanding the preceding provisions of this Section 3.2, an Employee may elect (i) to delay commencement of his or her Excess and Supplemental Benefits to a specified date after the date applicable under Section 3.2(a) but not later than the Employee's Normal Retirement Date, or (ii) in the case of any Employee who becomes entitled to benefits in accordance with Section 3.5 of the Pension Plan, to accelerate commencement of his or her Excess and Supplemental Benefits to a specified date before the date applicable under Section 3.2(a) but not earlier than the first day of the month immediately following his or her 55th birthday, and/or (iii) to be paid his or her Excess and Supplemental Benefits in any form permitted (without regard to any requirements for spousal consent) under the Pension Plan other than the form applicable under Section 3.2(b). Any such election shall be made in writing, on a form furnished to the Employee for such purpose by the Administrative Committee. The form shall be signed by the Employee and delivered to the Administrative Committee. An election under this Section 3.2(c) shall not be effective unless received by the Administrative Committee at least twenty-four months prior to the Employee's retirement or other termination of employment. (d) If payment of Excess and/or Supplemental Benefits commences earlier or later than payment of Pension Plan benefits, the amount of the Excess and/or Supplemental Benefits to be paid hereunder shall be determined as though payment of Pension Plan benefits commenced on the same date as payment of such Benefits commences, except that no increase in the dollar limitation of section 415(b)(1)(A) of the Code occurring after payment of Pension Plan benefits commences shall be taken into account. (e) If Excess and/or Supplemental Benefits commence to be paid on or after the date Pension Plan benefits commence to be paid, the amount of Excess and/or Supplemental Benefits to be paid hereunder shall be determined in accordance with the following additional rules: (i) determine the Employee's Excess and/or Supplemental Benefits as though such Benefits were payable in the same form, and with the same beneficiary, if any, as Pension Plan benefits, and disregarding any change in marital status occurring subsequent to the date on which payment of Pension Plan benefits commence, (ii) if the Employee's Pension Plan benefits are payable in accordance with Option 1 or 2, as described in Section 10.1 of the Pension Plan, divide the amount determined in (i) by the complement of the reduction percentage applied to Pension Plan benefits in accordance with such Section 10.1, to convert such amount into a benefit payable in the form of a single life annuity, and (iii) if payment of the Employee's Excess and/or Supplemental Benefits is to be made in a form other than as a single life annuity, reduce the amount determined in (ii) by the reduction percentage that would be applicable under Section 10.1 of the Pension Plan to an annuity payable thereunder to the Employee in the same form as the form in which payment of the Employee's Excess and/or Supplemental Benefits is to be made hereunder and with the same beneficiary. If Excess and/or Supplemental Benefits commence to be paid before Pension Plan benefits commence to be paid, the amount of such Benefits to be paid hereunder shall be determined as though Pension Plan benefits were being paid at the same time and in the same form as Excess and/or Supplemental Benefits, until such time as Pension Plan benefits commence to be paid, at which time the amount of Excess and/or Supplemental Benefits thereafter to be paid hereunder shall be adjusted, in a manner consistent with the foregoing paragraph, to the extent necessary to reflect any difference in the form of payment for the Employee's Pension Plan benefits and the form of payment for his or her Excess and/or Supplemental Benefits. (f) In determining the amount of the Excess and/or Supplemental Benefit payable hereunder to an Employee or the Employee's surviving spouse, there shall be taken into account any increase in the amount of the pension benefit that is payable, pursuant to Section 6 or Section 9 of the Pension Plan, to the Employee or his or her surviving spouse for the first 12 months during which such pension benefit is payable. (g) If, pursuant to Section 3.2(b) or (c) above, an Employee's Excess and/or Supplemental Benefit is otherwise required to be paid in the same form as Option 1 or Option 2 as described in Section 10.1 of the Pension Plan, and if the person designated by the Employee as his or her beneficiary for purposes of such payment form should die at any time prior to the fifth anniversary of the date on which the Employee's Benefits hereunder commence to be paid (the Employee's Benefit Starting Date"), the Benefit amounts payable to the Employee hereunder after the date of such beneficiary's death shall be equal to the Benefit amounts that would have been payable to the Employee hereunder after such date if such Benefit amounts had been payable to the Employee, from his or her Benefit Starting Date, in the form of a single life annuity. (h) Notwithstanding any other provision of the Plan to the contrary or any other optional form of distribution otherwise elected, each Employee shall be permitted to make a special distribution election to have his or her Excess and/or Supplemental Benefit distributed in the form of a single lump sum payment in the event of the Employee's termination of employment (1) by the Company (A) within six (6) months prior to a Change in Control or (B) prior to a Change in Control but which the Employee reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with, or in anticipation of a Change in Control which has been threatened or proposed and which actually occurs, or (2) for any reason within the two (2) year period following a Change in Control; provided, however, that such election shall be effective only if it is made either (I) at least twenty-four (24) months prior to such termination of the Employee's employment, or (II) if such termination of employment constitutes an "Involuntary Termination" as defined below, at least one year prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made at any time; provided, however, that any such revocation or new election shall be effective only if it is made within the election period specified in clause (I) or (II) of the preceding sentence. Any special election, or revocation of a special election, that may be made hereunder shall be made in writing, on a form furnished to the Employee for such purpose by the Administrative Committee. The lump sum payment to be made hereunder to an Employee shall be in an amount that is Actuarially Equivalent (as defined in the Pension Plan and determined as of the date of the Employee's termination of employment) to the Excess and/or Supplemental Benefit that otherwise would be payable hereunder to the Employee if (x) payment of the Employee's Excess and/or Supplemental Benefit and the benefits payable to the Employee under the Pension Plan were to commence on the Employee's Normal Retirement Date (as defined in the Pension Plan) or, if earlier, on the earliest date as of which the Employee could elect to have payment of his or her benefits under the Pension Plan commence, (y) the Employee's Excess and/or Supplemental Benefit were payable in the form of a single life annuity, and (z) the Employee's benefits under the Pension Plan were payable either (1) in the same form as Option 2 as described in Section 10.1 of the Pension Plan with the Employee's spouse as the beneficiary thereunder, if the Employee is married on the date of his or her termination of employment, or (2) in the form of a single life annuity, if the Employee is not married on such date. The lump sum payment to be made hereunder to the surviving spouse of an Employee shall be in an amount that is Actuarially Equivalent (as defined in the Pension Plan and determined as of the date of the Employee's death) to the Excess and/or Supplemental Benefit that otherwise would be payable hereunder to such spouse by reason of the Employee's death. The lump sum payment to be made hereunder with respect to any Employee shall be made by no later than 30 days following the date of the Employee's termination of employment. For purposes of this Section 3.2(h), an "Involuntary Termination" shall mean the termination of an Employee's employment (A) as a result of the Employee's death, (B) by the Company, for any reason, or (C) by the Employee, for "Good Reason" as defined below. For purposes of the paragraph above, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (A) a change in the Employee's status, title, position or responsibilities (including reporting responsibilities) which, in the Employee's reasonable judgement, represents an adverse change from his or her status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Employee of any duties or responsibilities which, in the Employee's reasonable judgement, are inconsistent with his or her status, title, position or responsibilities; or any removal of the Employee from or failure to reappoint or reelect him or her to any of such offices or positions, other than in connection with the termination of his or her employment for disability, for cause, or by the Employee other than for Good Reason; (B) a reduction in the Employee's annual base salary below the rate of the Employee's annual base salary in effect as of the date of the Change in Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Employee; (C) the relocation of the offices of the Company at which the Employee is principally employed to a location more than twenty-five (25) miles from the location of such offices immediately prior to the Change in Control, or the Company's requiring the Employee to be based anywhere other than such offices, except to the extent the Employee was not previously assigned to a principal location and except for required travel on the Company's business to an extent substantially consistent with the Employee's business travel obligations at the time of the Change in Control; (D) the failure by the Company to pay to the Employee any amount of the Employee's current compensation, or any amount payable under any deferred compensation program of the Company in which the Employee participated, within seven (7) days of the date on which payment of such amount is due; or (E) the failure by the Company to (1) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which the Employee was participating immediately prior to the Change in Control unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Employee or (2) provide the Employee with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under all other compensation or employee benefit plans, programs and practices in which the Employee was participating immediately prior to the Change in Control. Any event or condition described in subparagraph (A) through (E) above which occurs (1) within six (6) months prior to a Change in Control or (2) prior to a Change in Control but which (x) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control, or (y) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, shall constitute Good Reason for purposes of this Section 3.2(h) notwithstanding that it occurred prior to a Change in Control. 3.3 Each Employee entitled to benefits under the Plan shall have the status of a mere unsecured creditor of the Company. The Plan shall constitute a mere promise by the Company to make payments in the future of the benefits provided for herein. It is intended that the arrangements reflected in this Plan be treated as unfunded for tax purposes and for purposes of Title I of ERISA. 3.4 An Employee's rights to benefit payments under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Employee or his or her spouse or other beneficiary. SECTION 4 Administration 4.1 The Plan shall be administered by an Administrative Committee. The Administrative Committee shall consist of such persons as the Company from time to time may appoint to serve thereon. Action to appoint or remove members of the Committee may be taken by the Company either by resolution duly adopted by its Board of Directors, or by an instrument in writing executed by an officer of the Company to whom authority to appoint or remove members of the Committee has been delegated pursuant to a resolution duly adopted by the Company's Board of Directors. 4.2 The Administrative Committee shall have the power to interpret the Plan, to decide all questions that may arise as to the construction or application of any of its provisions, and make all determinations as to the rights of Employees or other persons to benefits under the Plan. Any determination made by the Administrative Committee prior to a Change in Control as to the interpretation, construction or application of the Plan, or as to the rights of any Employee or other persons to benefits under the Plan, shall be conclusive and binding on all parties. Any such determination made by the Administrative Committee after the occurrence of a Change in Control that denies, in whole or in part, any claim made by any individual for benefits hereunder shall be subject to judicial review, under a "de novo", rather than a deferential, standard. 4.3 Each member of the Administrative Committee shall be indemnified and held harmless by the Company for any liability or loss (including legal fees or other expenses of litigation) arising out of or in connection with his or her services to the Plan in such capacity, to the extent that such liability or loss (a) is not insured against under any applicable policy of insurance (whether or not maintained by the Company) and (b) is not determined to be due to the gross negligence or willful misconduct of such member or other person. SECTION 5 Amendment and Termination 5.1 Subject to Section 5.3, the Company may amend the Plan at any time. Any such amendment may be made with retroactive effect to the extent not prohibited by law. Action to amend the Plan may be taken by the Company either by resolution duly adopted by the Company's Board of Directors, or by an instrument in writing executed by an officer of the Company to whom authority to adopt or approve amendments to the Plan has been delegated pursuant to a resolution duly adopted by the Company's Board of Directors. 5.2 Subject to the provisions of Section 5.3, the Plan may be terminated at any time by the Board of Directors. 5.3 Notwithstanding the provisions of Sections 5.1 and 5.2, (a) no amendment to or termination of the Plan shall impair any rights to benefits which have accrued hereunder and (b) no amendment to Section 3.2(h), Section 4.2 or to this Section 5.3, nor any termination of the Plan, effectuated (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, shall be effective if the amendment or termination adversely affects the rights of any Employee under the Plan. EX-10.N 17 EXHIBIT 10N Exhibit 10-N Mr. J. R. Leva Page 1 November 1, 1996 November 1, 1996 CONFIDENTIAL Mr. J.R. Leva 2 Ryan Court Chester, New Jersey 07930 Dear Jim: The purpose of this letter is to amend and restate the letter agreement dated February 22, 1993 between you and Jersey Central Power & Light Company ("Jersey Central") (the "Prior Agreement") which set forth the terms of the supplemental pension arrangement authorized by Jersey Central's Board of Directors on October 23, 1989. Upon your agreement to this amendment and restatement as provided on the last page of this letter agreement (the "Agreement"), the Prior Agreement shall be superseded and replaced in its entirety by the terms and conditions set forth below. 1. Upon your retirement from the GPU System, you will receive a supplemental pension from Jersey Central, in the amount of $345 per month, commencing on the first day of the month following the month in which you so retire, subject to applicable tax and benefit deductions consistent with the then existing pension formula. The supplemental pension payable to you hereunder shall be paid to you in the form of a single life annuity unless you are married on the date as of which payment of such supplemental pension is to commence, in which event it shall be paid in the form described as Option 2 in Section 10.1 of the GPU Service, Inc. Employee Pension Plan, with your spouse as your beneficiary. This supplemental pension benefit is in addition to the benefits otherwise payable to you under applicable GPU System Companies' retirement plans ("GPUS's Retirement Plans"). 2. If you should die before you start to receive the supplemental pension payable to you hereunder, your surviving spouse, if any, will receive, for the rest of her life, 100% of the supplemental pension which would have been payable to you in accordance with this letter agreement, had you retired on the date of your death. Such payments to your surviving spouse shall commence on the first day of the month following the month of your death. Mr. J. R. Leva Page 2 November 1, 1996 3. Notwithstanding any other provision of this Agreement or GPUS's Retirement Plans to the contrary, or any other form of distribution provided for or optional form of distribution otherwise elected under this Agreement or GPUS's Retirement Plans, you shall be permitted to make a special distribution election to have the supplemental pension payable to you hereunder, or the survivors annuity payable hereunder to your surviving spouse, distributed in the form of a single lump sum payment in the event of your termination of employment within the GPU System (a) by any GPU System Company (1) within six (6) months prior to a Change in Control (as defined in Appendix A hereto) or (2) prior to a Change in Control but which you reasonably demonstrate (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (b) for any reason within the two (2) year period following the occurrence of a Change in Control; provided, however, that such election shall be effective only if it is made either (y) at least twenty-four (24) months prior to such termination of your employment, or (z) if such termination of your employment is the result of an "Involuntary Termination" (as defined in Appendix A hereto) at least one year prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made, at any time; provided, however, that any such revocation or new election shall be effective only if it is made within the election period specified in clause (y) or (z) of the preceding sentence. Any special election, or revocation of a special election, that may be made hereunder shall be made in writing, on a form furnished to you for such purpose by the Administrative Committee of the GPU Service, Inc. Employee Pension Plan. The lump sum payment to be made to you hereunder shall be in an amount that is "Actuarially Equivalent" (as defined below) to the supplemental pension that otherwise would be payable to you hereunder if payment of your supplemental pension and the pension payable to you under GPUS's Retirement Plans (i) were to commence on your retirement date, and (ii) were to be made in the form of a single life annuity. The lump sum payment to be made hereunder to your surviving spouse shall be in an amount that is Actuarially Equivalent (as defined below) to the survivor's annuity that otherwise would be payable to such spouse pursuant to Section 2 hereof. The lump sum payment to be made hereunder to you or your surviving spouse shall be made by no later than 30 days following the date of your termination of employment. Mr. J. R. Leva Page 3 November 1, 1996 For purposes of this Section 3, "Actuarially Equivalent" shall mean, with respect to any distribution or payment, an actuarially equivalent amount, calculated by using the annual interest rate on 30-year Treasury securities for the second month preceding the calendar year in which such distribution is made or commences, and the mortality table prescribed for purposes of section 417(e)(3)(A)(ii)(I) of the Internal Revenue Code of 1986, as amended (the "Code"). Such annual interest rate and mortality table shall be as specified or prescribed by the Commissioner of the Internal Revenue Service for purposes of Section 417(e)(3)(A)(ii) of the Code in revenue rulings, notices or other guidance. 4. With respect to your right to receive the supplemental pension amount set forth above, you shall have the status of a mere unsecured creditor of Jersey Central, and this letter agreement shall constitute a mere promise by Jersey Central to make payments of such supplemental pension payment amount in the future in accordance with the terms hereof. 5. It is the intention of the parties hereto that the arrangements set forth in this letter regarding the above pension amount shall be treated as unfunded for tax purposes and, if it should be determined that Title I of ERISA is applicable to such arrangement, for purposes of Title I of ERISA. 6. Your rights to receive the payment promised hereunder shall not be subject in any manner to anticipation, alienation or garnishment by your creditors or the creditors of your spouse or any other beneficiary. If the foregoing correctly reflects your understanding of the agreement between you and Jersey Central, will you please so indicate on the enclosed duplicate copies of this letter which will then constitute a binding agreement between Jersey Central and you. JERSEY CENTRAL POWER & LIGHT COMPANY By: _____________________________ D. Baldassari, President The foregoing correctly reflects my understanding and is agreed to by me. _____________________________ J.R. Leva Mr. J. R. Leva Page 1 November 1, 1996 APPENDIX A "Change in Control" shall mean: (1) An acquisition (other than directly from GPU, Inc. ("GPU")) of any common stock of GPU ("Common Stock") or other voting securities of GPU entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of common stock or the combined voting power of GPU's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) GPU or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by GPU (for purposes of this definition, a "Subsidiary"), (B) GPU or its Subsidiaries, or (C) any Person in connection with a "Non- Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board of Directors of GPU (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board of Directors of GPU (the "Board"); provided, however, that if the election, or nomination for election by GPU's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving GPU, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non- Control Transaction" shall mean a merger, consolidation or reorganization of GPU where: Mr. J. R. Leva Page 2 November 1,1 996 (i) the shareholders of GPU, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) GPU, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by GPU or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of GPU, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of GPU; or (C) The sale or other disposition of all or substantially all of the assets of GPU to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Mr. J. R. Leva Page 3 November 1,1996 Securities by GPU which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by GPU, and after such share acquisition by GPU, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. "Involuntary Termination" shall mean the termination of your employment within the GPU System (A) as a result of your death, (B) by GPU or GPU Service, Inc., for any reason, or (C) by you, for "Good Reason." "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (1) a change in your status, title, position or responsibilities (including reporting responsibilities) which, in your reasonable judgment, represents an adverse change from your status, title, position or responsibilities as in effect immediately prior thereto; the assignment to you of any duties or responsibilities which, in your reasonable judgment, are inconsistent with your status, title, position or responsibilities; or any removal of you from or failure to reappoint or reelect you to any of such offices or positions, except in connection with the termination of your employment for disability, cause, as a result of your death or by you other than for Good Reason; (2) a reduction in your annual base salary; (3) any change in location of your place of employment to a location other than Parsippany, New Jersey without your consent, (4) the failure by GPU to pay to you any portion of your current compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of GPU in which you participated, within seven (7) days of the date such compensation is due; (5) the failure by GPU to (A) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which you Mr. J. R. Leva Page 4 November 1, 1996 were participating immediately prior to the Change in Control, unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to you or (B) provide you with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other compensation or employee benefit plan, program and practice in which you were participating immediately prior to the Change in Control; (6) the failure of GPU to obtain a satisfactory agreement from any successors or assigns to assume and agree to honor and perform GPU's obligations under this Agreement; or Any event or condition described in clauses (1) through (6) which occurs (1) within six (6) months prior to a Change in Control or (2) prior to a Change in Control but which you reasonably demonstrate (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of a Change in Control which has been threatened or proposed, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to a Change in Control. Mr. James R. Leva Page 1 November 1, 1996 November 1, 1996 Mr. James R. Leva 2 Ryan Court Chester, New Jersey 07930 Dear Jim: The purpose of this letter is to amend and restate the letter agreement dated November 22, 1995 between you and GPU, Inc. ("GPU") (the "Prior Agreement") which set forth the terms and conditions of the supplemental pension that GPU has agreed to provide to you upon your retirement. Upon your agreement to this amendment and restatement as provided on the last page of this letter agreement (the "Agreement"), the Prior Agreement shall be superseded and replaced in its entirety by the terms and conditions set forth below. 1. Upon your retirement on any date subsequent to the date of this letter (the date as of which you so retire is referred to herein as your "Retirement Date") you shall be entitled to receive from GPU a supplemental pension (your "Supplemental Pension"), which shall be in addition to the pension amounts payable to you under the GPU Service Corporation Employee Pension Plan (the "EPP"), the GPU Service Corporation Supplemental and Excess Benefits Plan (the "SEBP"), and the amended and restated letter agreement (the "JCP&L Letter Agreement") between you and Jersey Central Power & Light Company dated August 1, 1996 (together, the "Retirement Plans"). 2. The Supplemental Pension payable to you hereunder, when expressed as a single life annuity, shall be an annual amount of income equal to (a) 65% of your Final Average Compensation (as defined in Section 3 hereof), reduced by (b) the aggregate annual pension amount payable to you under the Retirement Plans, determined for this purpose without taking into account the 20% increase in the pension amounts payable to you under the EPP and the SEBP during the first 12 months following your Retirement Date. If any pension amount included in the aggregate pension amount referred to in clause (b) of the preceding sentence is not payable in the form of a single life annuity commencing on the first day of the month following your Retirement Date, it shall be converted into a pension amount that would be of equivalent actuarial value to such pension amount if it were so payable. 3. For purposes of Section 2 hereof, your "Final Average Compensation" shall mean the quotient resulting from dividing by three the sum of (a) the aggregate amount of base salary payable to you during the 36-month period ending on your Retirement Date and (b) the aggregate amount of the awards made to you under the Incentive Compensation Plan for Elected Officers of GPU Service, Inc. (the "ICP") that are attributable to such 36-month period. Mr. James R. Leva Page 2 November 1, 1996 The amounts referred to in clauses (a) and (b) of the preceding paragraph shall be determined without taking into account any deferral election made by you under the GPU, Inc. and Subsidiary System Companies Employee Savings Plan for Non- bargaining Employees or under the GPU System Companies Deferred Compensation Plan, and without taking into account any salary reduction election made by you under the GPU Service, Inc. Flexible Benefit Plan. For purposes of clause (b) of the first paragraph of this section 3, the portion of an award made to you under the ICP for any year that is attributable to each of the calendar months within such year shall be determined by dividing the total amount of such award by twelve (12) or, in the case of the year in which you retire, the number of months in the portion of such year ending on your Retirement Date. 4. The Supplemental Pension shall be paid to you in the form of a single life annuity unless you are married on your Retirement Date, in which case it shall be paid in the form described as Option 2 in Section 10.1 of the EPP, with your spouse as beneficiary. 5. If you should die before you start to receive your Supplemental Pension, your surviving spouse, if any, shall be entitled to receive from GPU an annuity (the "Survivor's Annuity") payable to her for her lifetime in an annual amount equal to 50% of the Supplemental Pension that would have been payable to you hereunder if you had not died, if you had retired on the last day of the month in which your death occurs, and if you had not been married on such last day. 6. Although expressed as annual amounts, the Supplemental Pension and the Survivor's Annuity shall be paid in equal monthly installments. Payment of your Supplemental Pension shall commence on the first day of the month following your Retirement Date and shall end with the installment payable for the month in which your death occurs or, if the Supplemental Pension is payable in the form described as Option 2 in Section 10.1 of the EPP, the month in which your death or your spouse's death occurs, whichever is the later. Payment of the Survivor's Annuity shall commence on the first day of the month following the date of your death and shall end with the installment payable for the month in which your surviving spouse's death occurs. 7. With each monthly installment of the Supplemental Pension payable to you during the first 12 months following your Retirement Date, you shall be entitled to receive an additional amount equal to 20% of the sum of (a) the amount of such monthly installment, and (b) the supplemental pension amount payable to you for such month under the JCP&L Letter Agreement. Such additional amount shall not be taken into account in determining the amount of the Survivor's Annuity payable pursuant to Section 5 hereof. Mr. James R. Leva Page 3 November 1, 1996 8. Notwithstanding any other provision of this Agreement or the Retirement Plans to the contrary, or any other form of distribution provided for or optional form of distribution otherwise elected under this Agreement or the Retirement Plans, you shall be permitted to make a special distribution election to have the Supplemental Pension payable to you hereunder, or the Survivors Annuity payable hereunder to your surviving spouse, distributed in the form of a single lump sum payment in the event of your termination of employment within the GPU System (a) by any GPU System Company (1) within six (6) months prior to a Change in Control (as defined in Appendix A hereto) or (2) prior to a Change in Control but which you reasonably demonstrate (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (b) for any reason within the two (2) year period following the occurrence of a Change in Control; provided, however, that such election shall be effective only if it is made either (y) at least twenty-four (24) months prior to such termination of your employment, or (z) if such termination of your employment is the result of an "Involuntary Termination" (as defined in Appendix A hereto) at least one year prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made, at any time; provided, however, that any such revocation or new election shall be effective only if it is made within the election period specified in clause (y) or (z) of the preceding sentence. Any special election, or revocation of a special election, that may be made hereunder shall be made in writing, on a form furnished to you for such purpose by the Administrative Committee of the EPP. The lump sum payment to be made to you hereunder shall be in an amount that is "Actuarially Equivalent" (as defined below) to the Supplemental Pension that otherwise would be payable to you hereunder if payment of your Supplemental Pension and the pension payable to you under the Retirement Plans (i) were to commence on your Retirement Date, and (ii) were to be made in the form of a single life annuity. The lump sum payment to be made hereunder to your surviving spouse shall be in an amount that is Actuarially Equivalent (as defined below) to the Survivor's Annuity that otherwise would be payable to such spouse pursuant to Section 4 hereof. The lump sum payment to be made hereunder to you or your surviving spouse shall be made by no later than 30 days following the date of your termination of employment. For purposes of this Section 8, "Actuarially Equivalent" shall mean, with respect to any distribution or payment, an actuarially equivalent amount, calculated by using the annual interest rate on 30-year Treasury securities for the second month preceding the calendar year in which such distribution is made or commences, and the mortality table prescribed for purposes of section 417(e)(3)(A)(ii)(I) of the Internal Revenue Code of 1986, as amended (the "Code"). Such annual interest rate and mortality Mr. James R. Leva Page 4 November 1, 1996 table shall be as specified or prescribed by the Commissioner of the Internal Revenue Service for purposes of Section 417(e)(3)(A)(ii) of the Code in revenue rulings, notices or other guidance. 9. You and your surviving spouse shall have the status of a general unsecured creditor of GPU with respect to your, and her, right to receive any payment under this Agreement. This Agreement shall constitute a mere promise by GPU to make payments in the future of the benefits provided for herein. It is intended that the arrangements reflected in this Agreement be treated as unfunded for tax purposes, as well as for purposes of Title I of ERISA. 10. Your rights and your surviving spouse's rights to payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by your creditors or the creditors of your spouse or any other beneficiary. If the foregoing correctly reflects your understanding of the agreement between you and GPU relating to your Supplemental Pension, will you please so indicate on the enclosed duplicate copy of this letter which will then constitute a binding agreement between GPU and you. GPU, INC. By: __________________________ Ira H. Jolles Senior Vice President and General Counsel The foregoing correctly reflects my understanding and is agreed to by me as of the date of this letter. _____________________________ James R. Leva Mr. James R. Leva Page 1 November 1, 1996 APPENDIX A "Change in Control" shall mean: (1) An acquisition (other than directly from GPU) of any common stock of GPU ("Common Stock") or other voting securities of GPU entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of common stock or the combined voting power of GPU's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) GPU or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by GPU (for purposes of this definition, a "Subsidiary"), (B) GPU or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board of Directors of GPU (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board of Directors of GPU (the "Board"); provided, however, that if the election, or nomination for election by GPU's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving GPU, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non- Control Transaction" shall mean a merger, consolidation or reorganization of GPU where: Mr. J. R. Leva Page 2 November 1, 1996 (i) the shareholders of GPU, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) GPU, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by GPU or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of GPU, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of GPU; or (C) The sale or other disposition of all or substantially all of the assets of GPU to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by GPU which, by reducing the number of shares of Mr. J. R. Leva Page 3 November 1, 1996 Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by GPU, and after such share acquisition by GPU, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. "Involuntary Termination" shall mean the termination of your employment within the GPU System (A) as a result of your death, (B) by GPU or GPU Service, Inc., for any reason, or (C) by you, for "Good Reason." "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (1) a change in your status, title, position or responsibilities (including reporting responsibilities) which, in your reasonable judgment, represents an adverse change from your status, title, position or responsibilities as in effect immediately prior thereto; the assignment to you of any duties or responsibilities which, in your reasonable judgment, are inconsistent with your status, title, position or responsibilities; or any removal of you from or failure to reappoint or reelect you to any of such offices or positions, except in connection with the termination of your employment for disability, cause, as a result of your death or by you other than for Good Reason; (2) a reduction in your annual base salary; (3) any change in location of your place of employment to a location other than Parsippany, New Jersey without your consent, (4) the failure by GPU to pay to you any portion of your current compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of GPU in which you participated, within seven (7) days of the date such compensation is due; (5) the failure by GPU to (A) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which you were participating immediately prior to the Change in Control, unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to you or (B) provide you with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other Mr. J. R. Leva Page 4 November 1, 1996 compensation or employee benefit plan, program and practice in which you were participating immediately prior to the Change in Control; (6) the failure of GPU to obtain a satisfactory agreement from any successors or assigns to assume and agree to honor and perform GPU's obligations under this Agreement; or Any event or condition described in clauses (1) through (6) which occurs (1) within six (6) months prior to a Change in Control or (2) prior to a Change in Control but which you reasonably demonstrate (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of a Change in Control which has been threatened or proposed, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to a Change in Control. EX-10.O 18 EXHIBIT 10O Exhibit 10-O Mr. Ira H. Jolles November 1, 1996 Page 1 November 1, 1996 Mr. Ira H. Jolles 610 West End Avenue New York, New York 10024 Dear Ira: The purpose of this letter is to amend and restate the letter agreement dated September 18, 1995 between you, GPU, Inc. (GPU) and GPU Service, Inc. (GPUS). That letter (the "Prior Agreement") amended and restated a letter agreement dated September 8, 1994 between you, GPU and GPUS that in turn amended and restated a letter agreement dated March 24, 1992 between you, GPU and GPUS that in turn amended and restated a letter agreement dated December 13, 1989 between you, GPU and GPUS that set forth the terms of your employment, effective January 1, 1990, as Senior Vice President and General Counsel of GPU and as Executive Vice President and General Counsel of GPUS, as well as the agreement between you, GPU and GPUS with respect to your pension arrangements. Upon your agreement to this amendment and restatement as provided on the last page hereof, this letter agreement (the "Agreement") shall supersede and replace, in its entirety, the Prior Agreement. Section 1. Election to Other GPU Offices and Source of Your Compensation. You will be a director of GPUS. Your compensation and other benefits from the GPU System will be paid to you by GPUS. You will not receive separate or additional compensation for serving as a director or officer of GPU or any GPU System company other than GPUS. Payment of your compensation and the other benefits payable to you pursuant to this Agreement shall be obligations of both GPU and GPUS. Your other unfunded employee benefits payable by GPUS will be guaranteed by GPU to the extent covered under the latter's guarantee of unfunded benefits for all GPUS officers. Section 2. Effective Date of Employment and Initial Base Salary. Your effective date of employment will be January 1, 1990. Your Base Salary will be determined from time to time by the GPU Board of Directors and initially will be $284,000. Mr. Ira H. Jolles November 1, 1996 Page 2 Section 3. Retirement Provisions. (a) You will be a participant in the GPUS Employee Pension Plan and the GPUS Supplemental and Excess Benefits Plan (the "Retirement Plans") and, by reason of the services rendered by you in accordance with this Agreement, you will accrue benefits, commencing as of January 1, 1990, in accordance with the terms of such Retirement Plans, as the Retirement Plans may be in effect from time to time. (b) Under the terms of the present Retirement Plans, your Normal Retirement Date under those plans is the last day of the month in which you reach your sixty-fifth birthday (December 12, 2003). It is anticipated that you will retire on your Normal Retirement Date. If you do retire on or after that date, you will receive an additional retirement pension from GPU System sources, equal to the additional pension which would have been paid under the Retirement Plans if, in addition to your actual years of creditable service, you had an additional 20 years of past creditable service. Payment of the additional retirement pension will commence on the first day of the month following the month in which you so retire. (c) GPUS has in effect Short-Term and Long-Term Disability Income Plans that provide coverage, up to your Normal Retirement Date, for employees meeting the requirements of such Plans. If you are receiving Disability Income under either such Plan at the time you reach your Normal Retirement Date, you will thereafter receive an additional retirement pension from GPU System sources equal to the additional pension which would have been paid under the Retirement Plans if, in addition to your actual years of creditable service, you had an additional 20 years of past creditable service. (d) If your employment within the GPU System shall be terminated (i) as a result of an "Involuntary Termination" (as defined below) at any time within two (2) years following the occurrence of a "Change in Control" (as defined in Appendix A hereto), or (ii) by GPU or GPUS without "Cause" (as defined in Appendix A hereto), then you will receive from GPU System sources an additional retirement pension, equal to the additional pension which would have been paid under the Retirement Plans if, in addition to your actual years of creditable service, you had an additional twenty (20) years of past creditable service. Payment of the additional retirement pension will commence on the first day of the month following the month in which your employment is so terminated. For purposes of clause (i) above, "Involuntary Termination" shall mean (A) the termination of your employment within the GPU System by GPU, or (B) a termination by you (x) for "Good Reason" Mr. Ira H. Jolles November 1, 1996 Page 3 (as defined in Appendix A hereto) or (y) as the result of any other material adverse change in the conditions of your employment within the GPU System. If the termination of your employment by GPU is (1) within six (6) months prior to a Change in Control or (2) prior to the date of a Change in Control but you reasonably demonstrate that the termination (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, such termination shall be deemed to have occurred after a Change in Control. (e) If your employment within the GPU System shall terminate for any reason, other than by death or retirement or termination in accordance with paragraphs (b), (c) or (d) above, you will receive from GPU System sources an additional retirement pension equal to the additional pension which would have been paid under the Retirement Plans if, in addition to your actual years of creditable service, you had an additional number of years of past creditable service determined in accordance with the following table (employing straight-line interpolation for fractional years of actual GPU employment): Years of Actual Additional Number of Years GPU Employment of Past Creditable Service 1 2.0 2 3.5 3 5.0 4 6.0 5 7.0 6 8.0 7 8.5 8 9.0 9 9.5 10 10.0 11 12.5 12 15.0 13 17.5 14 20.0 Payment of the additional retirement pension payable to you under this paragraph (e) shall commence on the first day of the month following the month in which your employment so terminates. (f) For purposes of determining the amount of the additional retirement pension payable to you under paragraphs (b), (c), (d) or (e) above, it shall be assumed that the pension Mr. Ira H. Jolles November 1, 1996 Page 4 payable to you under the Retirement Plans is payable in the form of a single life annuity, and that payment of such pension will commence on the same date as payment of your additional retirement pension hereunder will commence. The additional retirement pension payable to you hereunder shall be paid to you in the form of a single life annuity unless you are married on the date as of which payment of such pension is to commence, in which event it shall be paid in the form described as Option 2 in Section 10.1 of the GPUS Employee Pension Plan, with your spouse as your beneficiary. (g) If you should die before you start to receive the additional pension payable to you under paragraph (b), (c), (d) or (e), your surviving spouse, if any, will receive, for the rest of her life from GPU System sources, 100% of the pension which would have been payable to you under the Retirement Plans and 100% of the additional retirement pension which would have been payable to you in accordance with paragraph (e), had you terminated employment on the date of your death. Such payments to your surviving spouse shall commence on the first day of the month following the month of your death. To the extent your surviving spouse does not receive such pension from the Retirement Plans, she will receive it from GPU System sources. (h) Retirement or pension benefits from prior employers to which you are now, or may in the future be, entitled will not be applied against the pension benefits payable to you pursuant to this Section and you are free to elect to receive such other pension benefits when, and in such manner as, you choose. Section 4. Supplemental Pension. Upon your retirement on any date subsequent to the date of this letter (the date as of which you so retire is referred to herein as your "Retirement Date") you shall be entitled to receive from GPU System sources, in addition to the additional retirement pension payable to you pursuant to Section 3 hereof, a supplemental pension, which shall be payable upon the following terms and conditions: (a) The supplemental pension payable to you hereunder, when expressed as a single life annuity, shall be a monthly amount of income equal to the amount, if any, by which either (i) $10,825.75 for each month beginning after your Retirement Date and before the month beginning after your 62nd birthday, or (ii) $10,325.75 for each month beginning after the later of your Retirement Date or your 62nd birthday, exceeds (iii) the aggregate pension amount payable to you for such month under the Mr. Ira H. Jolles November 1, 1996 Page 5 Retirement Plans and Section 3 hereof, determined for this purpose without taking into account (x) any Additional Pension amount payable to you under the GPUS Employee Pension Plan, and (y) the 20% increase in the pension amounts payable to you under the Retirement Plans and Section 3 hereof during the first 12 months following your retirement. For purposes of the foregoing, if any part of the aggregate pension amount payable to you under the Retirement Plans or Section 3 hereof is not payable in the form of a single life annuity commencing on the first day of the month following your Retirement Date, the pension amount referred to in (iii) above shall be determined as if such part were so payable. (b) The supplemental pension shall be paid to you in the same form, and payments shall commence at the same time, as payment of the additional retirement pension provided for under Section 3 hereof. (c) If you should die before you start to receive your supplemental pension, your surviving spouse, if any, shall be entitled to receive from GPU System sources an annuity payable to her for her lifetime in a monthly amount equal to 100% of the supplemental pension that would have been payable to you hereunder if you had not died, if you had retired on the last day of the month in which your death occurs, and if you had not been married on such last day. (d) With each monthly payment of the supplemental pension payable to you during the first 12 months following your Retirement Date, you shall be entitled to receive an additional amount equal to 20% of the amount of such monthly payment; provided, however, that if clause (i) of paragraph (a) above applies in calculating the supplemental pension amount payable for such month, the additional amount payable to you for such month under this paragraph (d) shall be equal to 20% of the supplemental pension amount that would be payable to you for such month if clause (ii) instead of clause (i) of paragraph (a) were applicable in calculating the amount of your supplemental pension payment for such month. Section 5. Special Distribution of Benefits. Notwithstanding any other provision of this Agreement or the Retirement Plans to the contrary, or any other form of distribution provided for or optional form of distribution otherwise elected under this Agreement or the Retirement Plans, you shall be permitted to make a special distribution election to have the additional retirement pension payable pursuant to Section 3 hereof and the supplemental pension payable pursuant to Section 4 hereof distributed in the form of a single lump sum payment in the event of your termination of employment within the Mr. Ira H. Jolles November 1, 1996 Page 6 GPU System (a) by any GPU System company (1) within six (6) months prior to a Change in Control or (2) prior to a Change in Control but which you reasonably demonstrate (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (b) for any reason within the two (2) year period following the occurrence of a Change in Control; provided, however, that such election shall be effective only if it is made either (y) at least twenty-four (24) months prior to such termination of your employment, or (z) if such termination of your employment is due to your death or is the result of an Involuntary Termination as defined in Section 3(d) hereof, at least one year prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made, at any time; provided, however, that any such revocation or new election shall be effective only if it is made within the election period specified in clause (y) or (z) of the preceding sentence. Any special election, or revocation of a special election, that may be made hereunder shall be made in writing, on a form furnished to you for such purposes by the Administrative Committee of the GPUS Employee Pension Plan. The lump sum payment to be made to you hereunder shall be in an amount that is "Actuarially Equivalent" (as defined below) to the additional retirement pension and supplemental pension that otherwise would be payable to you hereunder if payment of your additional retirement pension and supplemental pension and the pension payable to you under the Retirement Plans (i) were to commence on your Normal Retirement Date or, if earlier, on the earliest date as of which you could elect to have payment of your pension under the Retirement Plans commence and (ii) were to be made in the form of a single life annuity. The lump sum payment to be made hereunder to your surviving spouse shall be in an amount that is "Actuarially Equivalent" (as defined below) to the pension and the annuity that otherwise would be payable to such spouse pursuant to Section 3(g) and Section 4(c) hereof. The lump sum payment to be made hereunder to you or your surviving spouse shall be made by no later than 30 days following the date of your termination of employment. For purposes of this Section 5, "Actuarially Equivalent" shall mean, with respect to any distribution or payment, an actuarially equivalent amount, calculated by using the annual interest rate on 30-year Treasury securities for the second month preceding the calendar year in which such distribution is made or commences, and the mortality table prescribed for purposes of section 417(e)(3)(A)(ii)(I) of the Internal Revenue Code of 1986, as amended (the "Code"). Such annual interest rate and mortality Mr. Ira H. Jolles November 1, 1996 Page 7 table shall be as specified or prescribed by the Commissioner of the Internal Revenue Service for purposes of Section 417(e)(3)(A)(ii) of the Code in revenue rulings, notices or other guidance. Section 6. Other Benefits. To the extent permitted by such plans without requiring prior evidence of insurability or eligibility, you will participate in all GPU benefit plans in which senior GPU executives are eligible to participate, as such plans shall be in effect from time to time. In the case of each such plan that provides a benefit the amount of which depends, directly or indirectly, on the number of years of a participant's service within the GPU System, you shall receive the same benefit amount that would be payable to you under such plan if you were treated as having, in addition to your actual years of services, the number of years of service determined under the table in Section 3(e). The number of additional years of service so determined shall also be taken into account in determining your eligibility to participate in any GPU benefit plan in which senior GPU executives are eligible to participate that requires, as a condition for eligibility, the completion of a specified number of years of service within the GPU System. In addition to the supplemental pension described above, you will also receive (i) an extension of coverage in your and your family's health care benefits under the Supplemental and Excess Medical Plan to the third anniversary of the date of your retirement, or your attainment of age 62, whichever is later; and (ii) an amended Split-Dollar Agreement with respect to your Senior Executive Life Insurance policy to provide for eligibility to receive full benefits under your policy at age 55 with 10 years of service. Section 7. Nature of Your Rights. With respect to your right to receive an additional retirement pension pursuant to Section 3 hereof and the supplemental pension provided for under Section 4 hereof, you shall have the status of a mere unsecured creditor of GPUS and GPU; and this letter agreement shall constitute a mere promise by GPUS and GPU to make payments in the future of such pensions in accordance with the provisions of Sections 3, 4 and 5. It is the intention of the parties hereto that the arrangements set forth in Sections 3, 4 and 5 of this letter agreement regarding your additional retirement pension and supplemental pension shall be treated as unfunded for tax purposes and, if it should be determined that Title I of ERISA is applicable to such arrangements, for purposes of Title I of ERISA. Mr. Ira H. Jolles November 1, 1996 Page 8 Section 8. Nonassignability. Your rights to receive payments with respect to the additional retirement pension and supplemental pension provided for under Sections 3 and 4 of this letter agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by your creditors or creditors of your spouse or any other beneficiary. If the foregoing correctly reflects your understanding of the agreement between you and GPU and GPUS, will you please so indicate on the enclosed duplicate copy of this letter which will then constitute a binding agreement between GPU and GPUS, on the one hand, and you, on the other. GPU, INC. By: _____________________________ James R. Leva, Chairman and Chief Executive Officer GPU SERVICE, INC. By: ____________________________ James R. Leva, Chairman and Chief Executive Officer The foregoing is agreed to by me as of the date of this letter. _________________________________ Ira H. Jolles APPENDIX A Cause. For purposes of this Agreement, a termination of employment is for "Cause" if you have been convicted of a felony or the termination is evidenced by a resolution adopted in good faith by two-thirds of the GPU Board of Directors (the "Board") that you: (a) intentionally and continually failed substantially to perform your reasonably assigned duties with GPU or GPUS (other than a failure resulting from your incapacity due to physical or mental illness or from your assignment of duties that would constitute "Good Reason" as hereinafter defined) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer of GPU, has been delivered to you specifying the manner in which you have failed substantially to perform, or (b) intentionally engaged in conduct which is demonstrably and materially injurious to GPU; provided, however, that no termination of your employment shall be for Cause as set forth in this clause (b) until (1) there shall have been delivered to you a copy of a written notice, signed by a duly authorized officer of GPU, setting forth that you were guilty of the conduct set forth in this clause (b) and specifying the particulars thereof in detail, and (2) you shall have been provided an opportunity to be heard in person by the Board (with the assistance of your counsel if you so desire). No act, nor failure to act, on your part, shall be considered "intentional" unless you have acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that your action or failure to act was in the best interest of GPU. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by you after a written notice of termination is given by you shall constitute Cause for purposes of this Agreement. Change in Control. "Change in Control" shall mean: (1) An acquisition (other than directly from GPU) of any common stock of GPU ("Common Stock") or other voting securities of GPU entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of GPU's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting 1 Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) GPU or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by GPU (for purposes of this definition, a "Subsidiary"), (B) GPU or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board; provided, however, that if the election, or nomination for election by GPU's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving GPU, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of GPU where: (i) the shareholders of GPU, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities 2 of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) GPU, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by GPU or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of GPU, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of GPU; or 3 (C) The sale or other disposition of all or substantially all of the assets of GPU to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by GPU which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by GPU, and after such share acquisition by GPU, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. Good Reason. (a) For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (1) a change in your status, title, position or responsibilities (including reporting responsibilities) which, in your reasonable judgment, represents an adverse change from your status, title, position or responsibilities as in effect immediately prior thereto; the assignment to you of any duties or responsibilities which, in your reasonable judgment, are inconsistent with your status, title, position or responsibilities; or any removal of you from or failure to reappoint or reelect you to any of such offices or positions, except in connection with the termination of your employment for disability, Cause, as a result of your death or by you other than for Good Reason; (2) a reduction in your annual base salary; (3) any change in location of your place of employment to a location other than Parsippany, New Jersey without your consent, (4) the failure by GPU to pay to you any portion of your current compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of GPU in which you participated, within seven (7) days of the date such compensation is due; (5) the failure by GPU to (A) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which you 4 were participating immediately prior to the Change in Control, unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to you or (B) provide you with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other compensation or employee benefit plan, program and practice in which you were participating immediately prior to the Change in Control; (6) the failure of GPU to obtain a satisfactory agreement from any successors or assigns to assume and agree to honor and perform GPU's obligations under this Agreement; or (b) Any event or condition described in clauses (1) through (6) which occurs (1) within six (6) months prior to a Change in Control or (2) prior to a Change in Control but which you reasonably demonstrate (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party") or (B) otherwise arose in connection with, or in anticipation of a Change in Control which has been threatened or proposed, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to a Change in Control. 5 EX-10.P 19 EXHIBIT 10P Exhibit 10-P John G. Graham November 1, 1996 Page 1 November 1, 1996 John G. Graham 21 Candace Lane Chatham Township, New Jersey 07928 Dear John: The purpose of this letter is to amend and restate the letter agreement dated November 22, 1995 between you and GPU Service, Inc. ("GPUS") (the "Prior Agreement") which set forth the terms and conditions of the supplemental pension that GPUS has agreed to provide to you upon your retirement. Upon your agreement to this amendment and restatement as provided on the last page of this letter agreement (the "Agreement"), the Prior Agreement shall be superseded and replaced in its entirety by the terms and conditions set forth below. 1. Upon your retirement on any date subsequent to the date of this letter (the date as of which you so retire is referred to herein as your "Retirement Date") you shall be entitled to receive from GPUS a supplemental pension (your "Supplemental Pension"), which shall be in addition to the pension payable to you under GPUS's Employee Pension Plan and GPUS's Supplemental and Excess Benefits Plan (together, "GPUS's Retirement Plans"). 2. The Supplemental Pension payable to you hereunder, when expressed as a single life annuity, shall be a monthly amount of income equal to the amount, if any, by which either (a) $12,653.50 for each month beginning after your Retirement Date and before the month beginning after your 62nd birthday, or (b) $12,153.50 for each month beginning after the later of your Retirement Date or your 62nd birthday, exceeds (c) the aggregate pension amount payable to you for such month under GPUS's Retirement Plans, determined for this purpose without taking into account (i) any Additional Pension amount payable to you under GPUS's Employee Pension Plan and (ii) the 20% increase in the pension amounts payable to you under GPUS's Retirement Plans during the first 12 months following your retirement. For purposes of the foregoing, if any part of the aggregate pension amount payable to you under GPUS's Retirement Plans is not payable in the form of a single life annuity commencing on the first day of the month following your Retirement Date, the pension amount referred to in (c) above shall be determined as if such part were so payable. John G. Graham November 1, 1996 Page 2 3. The Supplemental Pension shall be paid to you in the form of a single life annuity unless you are married on your Retirement Date, in which case it shall be paid in the form described as Option 2 in Section 10.1 of GPUS's Employee Pension Plan, with your spouse as beneficiary. 4. If you should die before you start to receive your Supplemental Pension, your surviving spouse, if any, shall be entitled to receive from GPUS an annuity (the "Survivor's Annuity") payable to her for her lifetime in a monthly amount equal to 50% of the Supplemental Pension that would have been payable to you hereunder if you had not died, if you had retired on the last day of the month in which your death occurs, and if you had not been married on such last day. 5. Payment of your Supplemental Pension shall commence on the first day of the month following your Retirement Date and shall end with the payment due for the month in which your death occurs or, if the Supplemental Pension is payable in the form described as Option 2 in Section 10.1 of GPUS's Employee Pension Plan, the month in which your death or your spouse's death occurs whichever is the later. Payment of the Survivor's Annuity shall commence on the first day of the month following the date of your death and shall end with the payment due for the month in which your surviving spouse's death occurs. 6. With each monthly payment of the Supplemental Pension payable to you during the first 12 months following your Retirement Date, you shall be entitled to receive an additional amount equal to 20% of the amount of such monthly payment; provided, however, that if clause (a) of Section 2 hereof applies in calculating the Supplemental Pension amount payable for such month, the additional amount payable to you for such month under this Section 6 shall be equal to 20% of the Supplemental Pension amount that would be payable to you for such month if clause (b) instead of clause (a) of Section 2 were applicable in calculating the amount of your Supplemental Pension payment for such month. 7. In addition to the Supplemental Pension described above, you will also receive (i) an extension of coverage in your and your family's health care benefits under the Supplemental and Excess Medical Plan to the third anniversary of the date of your retirement, or your attainment of age 62, whichever is later, and (ii) an amended Split-Dollar Agreement with respect to your Senior Executive Life Insurance policy to provide for eligibility to receive full benefits under your policy at age 55 with 10 years of service. 8. Notwithstanding any other provision of this Agreement or GPUS's Retirement Plans to the contrary, or any other form of distribution provided for or optional form of distribution John G. Graham November 1, 1996 Page 3 otherwise elected under this Agreement or GPUS's Retirement Plans, you shall be permitted to make a special distribution election to have the Supplemental Pension payable to you hereunder, or the Survivors Annuity payable hereunder to your surviving spouse, distributed in the form of a single lump sum payment in the event of your termination of employment within the GPU System (a) by any GPU System Company (1) within six (6) months prior to a Change in Control (as defined in Appendix A hereto) or (2) prior to a Change in Control but which you reasonably demonstrate (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (b) for any reason within the two (2) year period following the occurrence of a Change in Control; provided, however, that such election shall be effective only if it is made either (y) at least twenty-four (24) months prior to such termination of your employment, or (z) if such termination of your employment is the result of an "Involuntary Termination" (as defined in Appendix A hereto) at least one year prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made, at any time; provided, however, that any such revocation or new election shall be effective only if it is made within the election period specified in clause (y) or (z) of the preceding sentence. Any special election, or revocation of a special election, that may be made hereunder shall be made in writing, on a form furnished to you for such purpose by the Administrative Committee of GPUS's Employee Pension Plan. The lump sum payment to be made to you hereunder shall be in an amount that is "Actuarially Equivalent" (as defined below) to the Supplemental Pension that otherwise would be payable to you hereunder if payment of your Supplemental Pension and the pension payable to you under GPUS's Retirement Plans (i) were to commence on your Retirement Date, and (ii) were to be made in the form of a single life annuity. The lump sum payment to be made hereunder to your surviving spouse shall be in an amount that is Actuarially Equivalent (as defined below) to the Survivor's Annuity that otherwise would be payable to such spouse pursuant to Section 4 hereof. The lump sum payment to be made hereunder to you or your surviving spouse shall be made by no later than 30 days following the date of your termination of employment. For purposes of this Section 8, "Actuarially Equivalent" shall mean, with respect to any distribution or payment, an actuarially equivalent amount, calculated by using the annual interest rate on 30-year Treasury securities for the second month preceding the calendar year in which such distribution is made or commences, and the mortality table prescribed for purposes of section 417(e)(3)(A)(ii)(I) of the Internal Revenue Code of 1986, as amended (the "Code"). Such annual interest rate and mortality John G. Graham November 1, 1996 Page 4 table shall be as specified or prescribed by the Commissioner of the Internal Revenue Service for purposes of Section 417(e)(3)(A)(ii) of the Code in revenue rulings, notices or other guidance. 9. You and your surviving spouse shall have the status of a mere unsecured creditor of GPUS with respect to your, and her, right to receive any payment under this Agreement. This Agreement shall constitute a mere promise by GPUS to make payments in the future of the benefits provided for herein. It is intended that the arrangements reflected in this Agreement be treated as unfunded for tax purposes, as well as for purposes of Title I of ERISA. 10. Your rights and your surviving spouse's rights to payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by your creditors or the creditors of your spouse or any other beneficiary. If the foregoing correctly reflects your understanding of the agreement between you and GPUS to your Supplemental Pension, will you please so indicate on the enclosed duplicate copy of this letter which will then constitute a binding agreement between GPUS on the one hand, and you, on the other. GPU SERVICE , INC. By: ___________________________ J.R. Leva, Chairman & Chief Executive Officer The foregoing correctly reflects my understanding and is agreed to by me as of the date of this letter _______________________________ John G. Graham John G. Graham November 1, 1996 Page 1 APPENDIX A "Change in Control" shall mean: (1) An acquisition (other than directly from GPU, Inc. ("GPU")) of any common stock of GPU ("Common Stock") or other voting securities of GPU entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of common stock or the combined voting power of GPU's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) GPU or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by GPU (for purposes of this definition, a "Subsidiary"), (B) GPU or its Subsidiaries, or (C) any Person in connection with a "Non- Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board of Directors of GPU (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board of Directors of GPU (the "Board"); provided, however, that if the election, or nomination for election by GPU's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving GPU, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of GPU where: (i) the shareholders of GPU, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) GPU, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by GPU or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of GPU, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of GPU; or 2 (C) The sale or other disposition of all or substantially all of the assets of GPU to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by GPU which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by GPU, and after such share acquisition by GPU, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. "Involuntary Termination" shall mean the termination of your employment within the GPU System (A) as a result of your death, (B) by GPU or GPUS, for any reason, or (C) by you, for "Good Reason." "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (1) a change in your status, title, position or responsibilities (including reporting responsibilities) which, in your reasonable judgment, represents an adverse change from your status, title, position or responsibilities as in effect immediately prior thereto; the assignment to you of any duties or responsibilities which, in your reasonable judgment, are inconsistent with your status, title, position or responsibilities; or any removal of you from or failure to reappoint or reelect you to any of such offices or positions, except in connection with the termination of your employment for disability, Cause, as a result of your death or by you other than for Good Reason; (2) a reduction in your annual base salary; (3) any change in location of your place of employment to a location other than Parsippany, New Jersey without your consent, (4) the failure by GPU to pay to you any portion of your current compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of GPU in which you participated, within seven (7) days of the date such compensation is due; 3 (5) the failure by GPU to (A) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which you were participating immediately prior to the Change in Control, unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to you or (B) provide you with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other compensation or employee benefit plan, program and practice in which you were participating immediately prior to the Change in Control; (6) the failure of GPU to obtain a satisfactory agreement from any successors or assigns to assume and agree to honor and perform GPU's obligations under this Agreement; or Any event or condition described in clauses (1) through (6) which occurs (1) within six (6) months prior to a Change in Control or (2) prior to a Change in Control but which you reasonably demonstrate (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of a Change in Control which has been threatened or proposed, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to a Change in Control. 4 EX-10.Q 20 EXHIBIT 10Q Exhibit 10-Q GPU, INC.RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS AS AMENDED AND RESTATED AS OF NOVEMBER 1, 1996 GPU, INC. RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS 1. Purpose. The purpose of this restricted Stock Plan for Outside Directors (the "Plan") is to enable GPU, Inc. ("GPU") to attract and retain persons of outstanding competence to serve on its Board of Directors by paying such persons a portion of their compensation in GPU Common Stock ("Common Stock") pursuant to the terms hereof. 2. Definitions. (a) The term "Board of Directors" shall mean the board of directors of GPU. (b) The term "Change in Control" shall mean the occurrence during the term of the Plan of: (1) An acquisition (other than directly from GPU) of any Common Stock or other voting securities of GPU entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of GPU's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) GPU or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by GPU (for purposes of this definition, a "Subsidiary"), (B) GPU or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board of Directors (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board of Directors; provided, however, that if the election, or nomination for election by GPU's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving GPU, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of GPU where: (i) the shareholders of GPU, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) GPU, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by GPU or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or Common Stock, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock; (B) A complete liquidation or dissolution of GPU; or (C) The sale or other disposition of all or substantially all of the assets of GPU to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted 2 amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by GPU which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by GPU, and after such share acquisition by GPU, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (c) The term "Outside Director" or "Participant" means a member of the Board of Directors who is not an employee (within the meaning of the Employee Retirement Income Security Act of 1974) of GPU or any of its Subsidiaries. A director of GPU who is also an employee of GPU or any of its Subsidiaries shall become eligible to participate in this Plan and shall be entitled to receive an award of restricted stock upon the termination of such employment. (d) The term "Subsidiary" means, for purposes other than Section 2(b), any corporation 50% or more of the outstanding Common Stock of which is owned, directly or indirectly, by GPU. (e) The term "Service" shall mean service as an Outside Director. 3. Eligibility. All Outside Directors of GPU shall receive stock awards hereunder. 4. Stock Awards. (a) A total of 33,000(1) shares of GPU Common Stock shall be available for awards under the Plan. Such shares shall be either previously unissued shares or reacquired shares. Any restricted shares awarded under this Plan with respect to which the restrictions do not lapse and which are forfeited as provided herein shall again be available for other awards under the plan. ___________________________ (1) Initially, 20,000 shares were authorized to be issued under the Plan. On May 29, 1991, GPU effected a two-for-one stock split by way of a stock dividend, leaving 33,000 shares available for issuance under the Plan on and after July 1, 1991 after giving effect to shares previously awarded. 3 (b) Each Outside Director shall receive an annual award of 300 shares of GPU Common Stock with respect to each calendar year or portion thereof, during which he or she serves as an Outside Director, beginning with the calendar year 1993. Awards shall be made in January of each year. However, for the calendar year in which an Outside Director commences Service, the award of shares to such Outside Director for such year shall be made in the month in which his or her Service commences, if his or her Service commences after January 31 of such year. All awards of shares made hereunder shall be subject to the restrictions set forth in Section 5. (c) Subject to the provisions of Section 5, certificates representing shares of GPU Common Stock awarded hereunder shall be issued in the name of the respective Participants. During the period of time such shares are subject to the restrictions set forth in Section 5, such certificates shall be endorsed with a legend to that effect, and shall be held by GPU or an agent therefor. The Participant shall, nevertheless, have all the other rights of a shareholder, including the right to vote and the right to receive all cash dividends paid with respect to such shares. Subject to the requirements of applicable law, certificates representing such shares shall be delivered to the Participant within 30 days after the lapse of the restrictions to which they are subject. (d) If as a result of a stock dividend, stock split, recapitalization (or other adjustment in the stated capital of GPU), or as the result of a merger, consolidation, or other reorganization, the common shares of GPU are increased, reduced, or otherwise changed, the number of shares available and to be awarded hereunder shall be appropriately adjusted, and if by virtue thereof a Participant shall be entitled to new or additional or different shares, such shares to which the Participant shall be entitled shall be subject to the terms, conditions, and restrictions herein contained relating to the original shares. In the event that warrants or rights are awarded with respect to shares awarded hereunder, and the recipient exercises such rights or warrants, the shares or securities issuable upon such exercise shall be likewise subject to the terms, conditions, and restrictions herein contained relating to the original shares. 5. Restrictions. (a) Shares are awarded to a Participant on the condition that he or she serves or has served as an Outside Director until: (i) the Participant's death or disability, or 4 (ii) the Participant's failure to stand for re-election at the end of the term during which the Participant reaches age 70; or (iii) the Participant's resignation or failure to stand for re-election prior to the end of the term during which the Participant reaches age 70 with the consent of the Board, i.e., approval thereof by a least 80% of the directors voting thereon, with the affected director abstaining; or (iv) the Participant's failure to be re-elected after being duly nominated. Termination of Service of a Participant for any other reason, including, without limitation, any involuntary termination effected by Board action, shall result in forfeiture of all shares awarded. Notwithstanding the foregoing, upon the occurrence of a Change in Control, the restrictions set forth in Section 5(b) hereof to which any shares awarded to a Participant are then still subject shall lapse, and the termination of the Participant's Service for any reason at any time after the occurrence of such Change in Control shall not result in the forfeiture of any such shares. (b) Shares awarded hereunder may not be sold, exchanged, transferred, pledged, hypothecated, or otherwise disposed of (herein, "Transferred") other than to GPU pursuant to Section 5(a) during the period commencing on the date of the award of such shares and ending on the date of termination of the Outside Director's Service; provided, however, that in no event may any shares awarded hereunder be Transferred for a period of six months following the date of the award thereof, except in the case of the recipient's death or disability, other than to GPU pursuant to Section 5(a) hereof. (c) Each Participant shall represent and warrant to and agree with GPU that he or she (i) takes any shares awarded under the Plan for investment only and not for purposes of sale or other disposition and will also take for investment only and not for purposes of sale or other disposition any rights, warrants, shares, or securities which may be issued on account of ownership of such shares, and (ii) will not sell or transfer any shares awarded or any shares received upon exercise of any such rights or warrants except in accordance with (A) an opinion of counsel for GPU (or other counsel acceptable to GPU) that such shares, rights, warrants, or other securities may be disposed of without registration under the Securities Act of 1933, or (B) an applicable "no action" letter issued by the Staff of the Commission. 6. Administrative Committee. An Administrative Committee (the "Committee") shall have full power and authority to construe and administer the Plan. Any action taken under the provisions of the Plan by the Committee arising out of or in connection with 5 the administration, construction, or effect of the Plan or any rules adopted thereunder shall, in each case, lie within the discretion of the Committee and shall be conclusive and binding under GPU and upon all Participants, and all persons claiming under or through any of them. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo," rather than a deferential, standard. The Committee shall have as members the Chief Executive Officer of GPU and two officers of GPU or its Subsidiaries designated by the Chief Executive Officer; in the absence of such designation, the other members of the Committee shall be the Chief Financial Officer and the Secretary of GPU. 7. Approval: Effective Date. The Plan is subject to the approval of a majority of the holders of GPU's Common Stock present and entitled to vote at a meeting of shareholders, and of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935. The Plan shall be effective January 1, 1989. 8. Termination and Amendment. The Board of Directors of GPU may suspend, terminate, modify or amend the Plan, provided that if any such amendment requires shareholder approval to meet the requirement of the then applicable rules under Section 16(b) of the Exchange Act, such amendment shall be subject to the approval of GPU's shareholders; and provided further that no amendment or modification to Section 2(b), to the penultimate sentence of Section 6, to the last sentence of Section 5(a), or to this Section 8, nor any suspension or termination of the Plan, effectuated (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, shall be effective if the amendment, modification, suspension or termination adversely affects the rights of any Participant under the Plan. If the Plan is terminated, the terms of the Plan shall, notwithstanding such termination, continue to apply to awards granted prior to such termination. In addition, no amendment, modification, suspension or termination of the Plan shall adversely affect the rights of any Participant with respect to any award (including without limitation any right with respect to the timing and method of payment of any award) granted to the Participant prior to the date of the adoption of such amendment, modification, suspension or termination without such Participant's written consent. 6 EX-10.R 21 EXHIBIT 10R Exhibit 10-R RETIREMENT PLAN FOR OUTSIDE DIRECTORSOF GPU, INC. AS AMENDED AND RESTATED AS OFNOVEMBER 7, 1996 RETIREMENT PLAN FOR OUTSIDE DIRECTORSOF GPU, INC. 1. Purpose The Retirement Plan for Outside Directors of GPU, Inc. (the "Plan") is designed to enhance the ability of GPU, Inc. (the "Corporation") to attract and retain competent and experienced Outside Directors by providing retirement benefits and death benefits for Eligible Outside Directors who retire or die after the Plan's Effective Date. 2. Definitions Except as otherwise specified or as the context may otherwise require, the following terms have the meanings indicated below for all purposes of this Plan: Board of Directors means the board of directors of the Corporation. Outside Director means a member of the Board of Directors who, during the period involved, is not or was not an Officer or an employee of the Corporation or a subsidiary thereof. Board Service means service as an Outside Director of the Corporation both before and after the Effective Date. Change in Control means the occurrence during the term of the Plan of: (1) An acquisition (other than directly from the Corporation) of any Common Stock or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non- Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board of Directors (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board of Directors; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to 2 such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or Common Stock, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. Compensation means the sum of: (a) the monthly retainer paid in cash to an Outside Director as compensation for services as a Director of the Corporation, excluding any fees paid for attendance at meetings of the Board of Directors or any committee of the Board of Directors, and also excluding any additional retainer paid for service as a Committee Chairman, and (b) one-twelfth of the cash value of all shares awarded to, the Outside Director pursuant to the Restricted Stock Plan for Outside Directors as the annual award thereunder for the year preceding his or her Retirement, and not subsequently forfeited. The cash value of a share shall be its closing price as reported for New York Stock Exchange-Composite Transactions on the date of award. Effective Date means the date of initial adoption of this Plan by the Board of Directors. 3 Retirement or Retires means the cessation of service as an Outside Director for any reason other than (i) acceptance of employment as an officer or employee of the Corporation or a subsidiary thereof or (ii) death. 3. Eligibility An Outside Director who has completed at least fifty-four (54) months of Board Service and who Retires from the Board of Directors or dies before Retirement on or after the Effective Date shall be eligible for benefits as provided herein. After the occurrence of a Change in Control, any person who was an Outside Director immediately prior to such Change in Control shall be eligible for benefits as provided herein upon Retirement or death before Retirement, whether or not such Outside Director has completed at least fifty-four (54) months of Board Service. 4. Pension Benefits of Eligible Retired Outside Directors Before Death The accumulated amount of pension benefits payable to an Outside Director eligible to receive benefits hereunder shall be equal to the product of (a) the number of months of such Outside Director's Board Service under this Plan times (b) the monthly compensation of such Outside Director at the date of such Outside Director's Retirement under the Plan. Such pension benefits shall be paid in monthly installments equal to the monthly compensation of each Outside Director at the date of such Outside Director's Retirement. Such pension benefits shall commence on the first day of the month following the Director's 60th birthday or the Director's Retirement under the Plan, whichever is later, and shall continue during the Retired Outside Director's life until the date when the total payments to the Retired Outside Director shall be equal to the Outside Director's accumulated pension benefits at the date of such Director's Retirement. Notwithstanding any other provision of the Plan to the contrary, each Outside Director shall be permitted to make a special distribution election to have his or her pension benefits distributed in the form of a single lump sum payment in the event of the Outside Director's Retirement following a Change in Control; provided, however, that such election shall be effective only if it is made at least twelve (12) months prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made at any time; provided, however, that any such revocation or new election shall be effective only if it is made at least twelve (12) months prior to a Change in Control. Any special election, or revocation of a special election, that may be made hereunder shall be made in writing, on a form furnished to the Outside Director for such purpose by the Personnel, Compensation and Nominating Committee. The lump sum payment to be made hereunder to an Outside Director 4 shall be in an amount that is Actuarially Equivalent (as defined in the GPU Service Corporation Employee Pension Plan or any successor thereto and determined as of the date of the Outside Director's Retirement) to the pension benefits that otherwise would be payable hereunder if such pension benefits were to commence upon the Outside Director's Retirement or 60th birthday, whichever is later. The lump sum payment to be made hereunder with respect to any Outside Director shall be made by no later than 30 days following the date of the Outside Director's Retirement. 5. Benefits Payable by Reason of Death of Eligible Outside Director In the event that an Outside Director who is eligible to receive benefits hereunder should die prior to receiving payment of the full amount of his or her accumulated pension benefits, the remaining portion of such Outside Director's accumulated pension benefits shall be paid as follows: (a) If the Outside Director dies after Retirement, the monthly payments previously made to the Outside Director shall continue to be made to the Outside Director's surviving spouse (or, if applicable, designated beneficiary) until the aggregate of the payments to the Outside Director and such surviving spouse or beneficiary shall be equal to the Outside Director's accumulated pension benefits at the date of such Director's Retirement. (b) If the Outside Director dies prior to Retirement, there shall be paid to the Outside Director's surviving spouse (or, if applicable, designated beneficiary) monthly installments equal to the monthly compensation of such Outside Director at the date of such Outside Director's death until the aggregate of the payments to such surviving spouse (or, if applicable, designated beneficiary) shall be equal to the Outside Director's accumulated amount of pension benefits at the date of the Outside Director's death. Payment of such monthly installments shall begin on the first day of the month next following the Outside Director's death or, if later, the first day of the month in which the Outside Director's 60th birthday would have occurred if the outside Director had survived. 6. Designated Beneficiary of Eligible Outside Director If an Eligible Outside Director shall die without leaving a surviving spouse or if the Outside Director's surviving spouse shall die prior to payment in full of the outside Director's accumulated pension benefits, the payments which would otherwise have been made to the Outside Director's surviving spouse shall be made to the Outside Director's designated beneficiary (or 5 beneficiaries). Such designations shall be made in writing on forms provided by the Corporation to the Outside Director. Any such designation by an Outside Director may be revoked by the Outside Director at any time before or after Retirement. Any such revocation shall be made in writing on a form provided by the Corporation to the Outside Director. 7. Provision for Benefits All benefits payable hereunder shall be provided from the general assets of the Corporation. No Outside Director shall acquire any interest in any specific assets of the Corporation by reason of this Plan. An Outside Director shall have the status of a mere unsecured creditor of the Corporation with respect to his or her right to receive any payment under the Plan. The Plan shall constitute a mere promise by the Corporation to make payments in the future of the benefits provided for herein. It is intended that the arrangements reflected in this Plan be treated as unfunded for tax purposes. 8. Amendment and Termination The Board of Directors reserves the right to terminate this Plan or amend this Plan prospectively in any respect at any time, but no such amendment may reduce (a) the benefits of any Outside Director who has previously Retired hereunder, or (b) the benefits accrued hereunder by any Outside Director prior to the effective date of such termination or amendment. In addition, the definition of Change in Control in Section 2, the last sentence in Section 3, the last paragraph in Section 4, this Section 8, and the last sentence of Section 9 may not be amended or modified, and the Plan may not be terminated, (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, if the amendment, modification or termination adversely affects the rights of any Outside Director under the Plan. 9. Administration This Plan shall be administered by the Personnel, Compensation, and Nominating Committee of the Board of Directors. Such Committee's final decision, in making any determination or construction under this Plan and in exercising any discretionary power, shall in all instances be final and binding on all persons having or claiming any rights under this Plan. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a de novo, rather than a deferential, standard. 6 10. Miscellaneous Nothing herein contained shall be deemed to give any Outside Director the right to be retained as a director of the Corporation, nor shall it interfere with the Outside Director's right to terminate such directorship at any time. An Outside Director's rights to payments under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer (other than transfer by will or by the laws of descent and distribution, in the absence of a beneficiary designation), assignment, pledge, encumbrance, attachment or garnishment by creditors of the Outside Director or his or her spouse or other beneficiary. 7 EX-10.S 22 EXHIBIT 10S Exhibit 10-S DEFERRED REMUNERATION PLAN FOR OUTSIDE DIRECTORSOF GPU, INC. (AS AMENDED AND RESTATED EFFECTIVE NOVEMBER 7, 1996) 1. Purpose 1.1 The purpose of this document is to set forth the Deferred Remuneration Plan for Outside Directors, as amended and restated effective November 7, 1996. The Plan will be implemented by individual elections by each Director. 2. Plan Summary 2.1 This Plan provides for deferral by Directors of all or a portion of current Remuneration. 2.2 Funds being deferred will be credited with the equivalent of interest in accordance with Section 6. 2.3 Each component of the deferred funds will be distributed as follows: (a) for a Director who elects deferral until a date or dates following his or her Retirement, to the Director, in accordance with his or her latest effective election. (b) for a Director who elects deferral until a date or dates preceding his or her Retirement, to the Director, in accordance with his or her initial election; or (c) if a Director dies before the deferred funds have been fully distributed, to his or her designated beneficiary, in accordance with the option in effect for the Director under Section 7.2 for each component except as the Board may otherwise determine, based on the circumstances at the time the distribution is to commence. 3. Definition of Terms 3.1 Account - refers to both Pre-Retirement and Retirement Accounts established for Directors unless specifically designated one or the other in the text of this Plan. 3.2 Board of Directors - refers to the Board of Directors of GPU, Inc. 3.3 Change in Control - A "Change in Control" shall mean the occurrence during the term of the Plan of: (1) An acquisition (other than directly from GPU, Inc. (the "Corporation")) of any common stock of the Corporation ("Common Stock") or other voting securities of the Corporation entitled to vote generally for the election of directors of the Corporation (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board of Directors (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board of Directors; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Corporation (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: 2 (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or common stock of the Corporation, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock; (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by 3 reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 3.4 Committee - refers to the Personnel, Compensation and Nominating Committee of the Corporation. 3.5 Director - refers to a member of the Board of Directors who is not an employee of the Corporation or any of its subsidiaries. 3.6 Plan - refers to this Deferred Remuneration Plan for Outside Directors as described in this document and as it may be amended in the future. 3.7 Remuneration - refers to all cash amounts earned during a calendar year by a Director for services performed as a Director (including services performed as a member of a committee of the Board of Directors), but does not include consulting fees, reimbursement for travel or other expenses or Corporation contributions to other benefit plans. 3.8 Pre-Retirement Account - refers to the memorandum account which shall be established and maintained for a Director who elects, pursuant to Section 5.2, to have payment of any portion of his or her Remuneration for any Plan Year deferred to a date prior to his or her Retirement. A separate Pre-Retirement Account shall be established and maintained for the Remuneration for each Plan Year which the Director so elects to defer. 3.9 Retirement Account - refers to the memorandum account which shall be established and maintained for a Director who elects, pursuant to Section 5.2, to have payment of any portion of his or her Remuneration for any Plan Year deferred to a date after his or her Retirement. All amounts deferred pursuant to elections made on or before December 31, 1985 under the Plan by a Director, together with all interest equivalents earned by such election and credited to such amounts prior to December 31, 1986, shall be treated, on or after such date, as part of the Director's Retirement Account. 4 3.10 Retirement - refers to the retirement from service on the Board of Directors, on account of resignation, death, or any other reason, without becoming an employee of the Corporation or any of its subsidiaries. 3.11 Plan Year - refers to the period October 1, 1986 through December 31, 1986; and each twelve (12) month period from January 1 through December 31 thereafter. 4. Administration 4.1 The Board of Directors has established this Plan. The Board of Directors may in its sole discretion modify the provisions of the Plan from time-to-time, or, may terminate the entire Plan at any time; provided, however, that Section 3.3, this Section 4.1, Section 4.4, the last sentence in the first paragraph of Section 6 and the last paragraph in Section 7.2 may not be amended or modified, and the Plan may not be terminated, (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, if the amendment, modification or termination adversely affects the rights of any Director under the Plan. No modification or termination of the Plan shall adversely affect the rights of any Director with respect to any amounts standing to the Director's credit in any Account immediately prior to the date of the adoption of such modification or termination, including without limitation any rights with respect to the time and method of payment of, or the crediting of interest equivalents with respect to, any such amounts. 4.2 Responsibility for the ongoing administration of this Plan rests with the Committee. 4.3 The Committee may delegate the daily administration of this Plan, including the maintenance of appropriate records, receiving notifications, making filings, and maintaining related documentation, to the Vice President - Human Resources of GPU Service Corporation and to the Vice President's staff. 4.4 All questions concerning the Plan, as well as any dispute over accounting or administrative procedures or interpretation of the Plan, will be resolved at the sole discretion of the Committee, except that no member of the Committee shall vote on any matter which affects that member but not all other members of the Committee. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a "Change in Control" that denies in whole or in part any claim made by any individual for benefits 5 under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential, standard. 4.5 All provisions of this Plan, its administration and interpretation, are intended to be in compliance with appropriate Internal Revenue Service Rulings and judicial decisions regarding the construction and operation of a deferred compensation program, so that deferred Remuneration and interest equivalents thereon will not constitute income constructively received prior to being distributed under the terms of this Plan. 4.6 A Director's election to voluntarily defer Remuneration, selection of a distribution commencement date and distribution option, and designation of a beneficiary and contingent beneficiary, made pursuant to this Plan shall be made in writing, on a form furnished to the Director by the Corporation for such purposes, signed and delivered personally or by first class mail to: Corporate Secretary GPU Service Corporation 100 Interpace Parkway Parsippany, New Jersey 07054 Any such election, selection, designation, or change therein, shall not become effective unless and until received by the Corporate Secretary. A change in a distribution election made after April 30, 1987 will not be effective unless made at least twenty-four (24) months prior to his or her Retirement or Disability. 5. Deferral Election 5.1 A Director may elect to defer all or any portion of his or her Remuneration for any Plan Year, providing such portion is three thousand dollars ($3,000) or more. A separate deferral election shall be made with respect to a Director's Remuneration for each Plan Year. An election to defer Remuneration for the 1986 amended Plan Year shall be made on or prior to September 30. In subsequent years, the election shall be made on or before December 31 of the year preceding the Plan Year. Notwithstanding, the foregoing, (a) Directors who are initially elected prior to December 1st of any Plan Year may, within 30 days of such initial election, make a deferral election for the then current Plan Year, and (b) Directors who are initially elected after December 1st of any Plan Year may immediately make a deferral election for both the then current Plan Year and for the immediately succeeding Plan Year; provided, however, that any deferral election made pursuant to clause (a) or (b) hereof shall be effective only with respect to Remuneration earned after such election has become effective. All elections under this Section 5.1 shall be irrevocable. 6 5.2 In his or her election to defer Remuneration for any Plan Year, a Director shall specify the amount or portion of the Remuneration to be deferred, and shall indicate whether the Remuneration so deferred is to be credited to a Pre-Retirement Account, or to a Retirement Account. 5.3 With respect to Remuneration deferred hereunder for a Plan Year which a Director elects to have credited to his or her Pre-Retirement Account, the Director shall specify in the election form the date on which distribution of the Pre-Retirement Account shall be made or commence. The date so selected shall be no earlier than 24 months from the close of the Plan Year. In the election form for the Plan Year, the Director shall also select an option under Section 7.2 for the distribution of the Pre-Retirement Account. Except as provided in Section 7.2 or 7.4, the date so specified, and the option so selected, may not thereafter be changed by the Director. 5.4 With respect to any Remuneration deferred hereunder which a Director elects to have credited to his or her Retirement Account, the Director shall, at the time he or she first elects to have an amount credited to that account, also elect a distribution commencement date and a distribution option under Section 7.2 for the distribution of the Retirement Account. A Director may, subject to the provisions of Section 4.6, change any election as to the distribution commencement date and distribution option for the Retirement Account previously made by the Director. The distribution commencement date so elected shall be either January 15 of the calendar year following the Director's Retirement, or January 15 of any subsequent calendar year. 5.5 In the case of a Director who, prior to January 1, 1986, made a deferral election under the Plan with respect to his or her Remuneration for the calendar year 1986, any deferral election made by the Director hereunder with respect to the period commencing October 1, 1986 and ending December 31, 1986 shall be effective, for that period, only with respect to the excess, if any, of the amount he or she so elects to defer for said period over the amount of Remuneration for said period deferred pursuant to the Director's prior election. 5.6 The amounts which are deferred, including interest equivalents, will be credited to a Director's Account. Prior to distribution, all amounts deferred including interest equivalents, will constitute general assets of the Corporation for use as it deems necessary, and will be subject to the claims of the Corporation's creditors. A Director shall have the status of a mere unsecured creditor of the Corporation with respect to his or her right to receive any payment under the Plan. The Plan shall constitute a mere promise by the Corporation to make payments in the future of the benefits provided for herein. 7 It is intended that the arrangements reflected in this Plan be treated as unfunded for tax purposes. 6. Interest Interest equivalents, compounded monthly on deposits treated as monthly transactions, will be credited at the end of each quarter in the calendar year. Such credit will be made to the balance of each account maintained for a Director hereunder, including the undistributed balance of any such account from which payments are being made in installments. The rate used in calculation of interest equivalents will be no less than the rate equal to the simple average of Citibank N.A. of New York Prime Rates for the last business day of each of the three months in the calendar quarter or, if greater, such other rate as established from time to time by the Committee. The Corporation may, but shall not be required to, purchase a life insurance policy, or policies, to assist it in funding its payment obligations under the Plan. If a policy, or policies, is so purchased, it shall, at all times, remain the exclusive property of the Corporation and subject to the claims of its creditors. Neither the Director nor any beneficiary or contingent beneficiary designated by him or her shall have any interest in, or rights with respect to such policy. 7. Distribution of Deferred Funds 7.1 A Director's Pre-Retirement Account shall be distributed to the Director, or distributions from such Pre-Retirement Accounts shall commence, on the date or dates specified in the elections made by the Director with respect to such accounts. A Director's Retirement Account shall be distributed to the Director, or distributions from such Retirement Account shall commence, on the date specified in the Director's latest effective election. 7.2 The options for distribution are: (a) A single lump sum payment. (b) Annual Installments over any fixed number of years selected by the Director, with a minimum of five annual installments required for the Retirement Account. (c) Other option, in equal or unequal payments, as specifically approved by the Committee. If distribution of a Director's Account is to be made in annual installments under Option (b) of Section 7.2, the amount of each installment will equal the total amount in said Account on the date the installment is 8 payable, divided by the number of installments remaining to be paid. In addition, if the distributions are made in installments under Option (b) of Section 7.2, the interest equivalent accrued on each Account each year after the date the first installment is payable will be distributed on each anniversary of such date. Notwithstanding any other provision of the Plan to the contrary or any other optional form of distribution otherwise elected, each Outside Director shall be permitted to make a special distribution election to have the entire balance of his or her Accounts distributed in the form of a single lump sum payment in the event of the Outside Director's Retirement following a Change in Control; provided, however, that such election shall be effective only if it is made at least twelve (12) months prior to such Change in Control. Any special election made hereunder may be revoked, and a new special election may be made at any time; provided, however, that any such revocation or new election shall be effective only if it is made twelve (12) months prior to a Change in Control. Any special election, or revocation of a special election, that may be made hereunder shall be made in the manner set forth in Section 4.6. 7.3 Except as the Committee may otherwise determine based on the circumstances at the time the distribution to the beneficiary is to commence: (a) If a Director should die after distribution of his/her Account maintained for the Director has commenced, but before the entire balance has been fully distributed, distributions will continue to be made to the Director's designated beneficiary or contingent beneficiary, in accordance with the distribution option in effect for such Account at the time of the Director's death. (b) If a Director should die before any distribution from an Account maintained for the Director hereunder has been made to him or her, distribution to the Director's designated beneficiary or contingent beneficiary shall be made, or shall commence, as soon as practicable after the Director's death, in accordance with the distribution option in effect for such Account at the time of the Director's death. Amounts remaining to be paid, after the death of the Director, to the designated beneficiary and the contingent beneficiary, will be paid in a lump sum to the estate of the last of such persons to die. 9 7.4 Notwithstanding anything herein to the contrary, any Account maintained for a Director hereunder may be distributed, in whole or in part, to such Director on any date earlier than the date on which distribution is to be made, or commence, pursuant to the Director's election if: (a) the Director requests early distribution, and (b) the Committee, in its sole discretion, determines that early distribution is necessary to help the Director meet some severe financial need arising from circumstances which were beyond the Director's control and which were not foreseen by the Director at the time he or she made the election as to the date or dates for distribution. A request by a Director for an early distribution shall be made in writing, shall set forth sufficient information as to the Director's needs for such distribution to enable the Committee to take action on his or her request, and shall be mailed or delivered to the Corporation's Corporate Secretary. 8. Non-Assignment of Deferred Remuneration 8.1 A Director's rights to payments under this Plan shall not be subject to any manner to anticipation, alienation, sale, transfer (other than transfer by will or by the laws of descent and distribution, in the absence of a beneficiary designation), assignment, pledge, encumbrance, attachment or garnishment by creditors of the Director or his or her spouse or other beneficiary. 8.2 All amounts paid under the Plan, including the interest equivalents credited to a Director's Account, are considered to be Remuneration. The crediting of interest equivalents is intended to preserve the value of the Remuneration so deferred for the Director. 10 EX-10.CC 23 EXHIBIT 10CC Exhibit 10-CC GPU, INC. 1990 STOCK PLAN FOR EMPLOYEES OF GPU, INC. AND SUBSIDIARIES AS AMENDED AND RESTATED TO REFLECT AMENDMENTS THROUGH AUGUST 1, 1996 1990 STOCK PLAN FOR EMPLOYEES OF GPU, INC. AND SUBSIDIARIES 1. Purpose GPU, Inc. (the "Corporation") desires to attract and retain employees of outstanding talent. The 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries (the "Plan") affords eligible employees the opportunity to acquire proprietary interests in the Corporation and thereby encourages their highest levels of performance. 2. Scope and Duration (a) Awards under the Plan may be granted in the following forms: (i) incentive stock options ("incentive stock options") as provided in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified stock options ("non-qualified options") (the term "options" includes incentive stock options and non-qualified options); (ii) shares of Common Stock of the Corporation (the "Common Stock") which are restricted as provided in paragraph 10 ("restricted shares"); or (iii) rights to acquire shares of Common Stock which are restricted as provided in paragraph 10 ("units" or "restricted units"). Options may be accompanied by stock appreciation rights ("rights"). (b) The maximum aggregate number of shares of Common Stock as to which awards of options, restricted shares, units or rights may be made from time to time under the Plan is 1,974,190 shares. (1) Shares issued pursuant to this Plan may be in whole or in part, as the Board of Directors of the Corporation (the "Board of Directors") shall from time to time determine, authorized but unissued shares or issued shares reacquired by the Corporation. If for any reason any shares as to which an option has been granted cease to be subject to purchase thereunder or any restricted shares or restricted units are forfeited to the Corporation, or to the extent that any awards under the Plan denominated in shares or units are paid or settled in cash or are surrendered upon the exercise of an option, ________________________________ (1) Initially, 1,000,000 shares were authorized to be issued under the Plan. On May 29, 1991, the Corporation effected a two-for-one stock split by way of a stock dividend, leaving 1,974,190 shares available for issuance under the Plan on and after that date, after giving effect to shares previously awarded. then (unless the Plan shall have been terminated) such shares or units, and any shares surrendered to the Corporation upon such exercise, shall become available for subsequent awards under the Plan unless such shares or units, if so made available for subsequent awards under the Plan, would not be exempt from Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act") pursuant to Rule 16b-3, as amended, thereunder; provided, however, that shares surrendered to the Corporation upon the exercise of an incentive stock option and shares subject to an incentive stock option surrendered upon the exercise of a right shall not be available for subsequent award of additional stock options under the Plan. (c) No incentive stock option shall be granted hereunder after November 30, 1999. 3. Administration (a) The Plan shall be administered by those members of the Personnel, Compensation and Nominating Committee, or any successor thereto, of the Board of Directors who are "disinterested persons" within the meaning of Rule 16b-3, as amended, under Section 16(b) of the Exchange Act or by such other committee consisting of not less than two persons each of whom shall qualify as "disinterested persons," as may be determined by the Board of Directors ("the Committee"). (b) The Committee shall have plenary authority in its sole discretion, subject to and not inconsistent with the express provisions of this Plan: (i) to grant options, to determine the purchase price of the Common Stock covered by each option, the term of each option, the employees to whom, and the time or times at which, options shall be granted and the number of shares to be covered by each option; (ii) to designate options as incentive stock options or non-qualified options and to determine which options shall be accompanied by rights; (iii) to grant rights and to determine the purchase price of the Common Stock covered by each right or related option, the term of each right or related option, the employees to whom, and the time or times at which, rights or related options shall be granted and the number of shares to be covered by each right or related option; (iv) to grant restricted shares and restricted units and to determine the term of the Restricted Period (as defined in paragraph 10) and other conditions applicable to such shares or units, the employees to whom, and the time or times at which, restricted shares or restricted units shall be granted and the number of shares or units to be covered by each grant; (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the Plan; (vii) to determine the terms and provisions of the option and rights agreements (which need not be identical) and the restricted share and restricted unit agreements (which need not be identical) entered into in connection with awards under the Plan, including any provisions of such agreements that may permit a recipient of an award of restricted units to elect, 2 prior to the vesting of such units, to defer the payment of cash and/or the delivery of shares of Common Stock otherwise to be made upon the vesting of such restricted units, and/or to defer the payment of any cash compensation awarded to the recipient with respect to such restricted units, or with respect to any restricted stock awarded to the recipient, either under this Plan or the GPU System Companies Deferred Compensation Plan (a "Deferral"); and to make all other determinations deemed necessary or advisable for the administration of the Plan. Without limiting the foregoing, the Committee shall have plenary authority in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, (1) to select GPU Officers (as defined below) for participation in the Plan, (2) to determine the timing, price and amount of any grant or award under the Plan to any GPU Officer, (3) either (A) to determine the form in which payment of any right granted or awarded under the Plan will be made (i.e., cash, securities or any combination thereof) or (B) to approve the election of the employee to receive cash in whole or in part in settlement of any right granted or awarded under the Plan. As used herein, the term "GPU Officer" shall mean an officer (other than an assistant officer) of the Corporation, any member of the Corporation's Corporate Executive Council (as it may be constituted from time to time), and any person who may from time to time be designated an executive officer of the Corporation by its Board of Directors. The exercise by the Committee of the powers granted in clauses (i), (ii), (iii), (iv), and (vii) hereof shall be subject to the approval of a committee of the Board of Directors comprised only of "disinterested persons" within the meaning of Rule 16b-3, as amended, under Section 16(b) of the Exchange Act with respect to a recipient of an award hereunder who is an officer (other than assistant officer) of the Corporation or the Chairman or President of any subsidiary (as defined in paragraph 4(a) hereof) of the Corporation (the "Board Committee"). (The Committee and the Board Committee are sometimes hereinafter referred to as the "Committees.") (c) The Committees may delegate to one or more of their members or to one or more agents such administrative duties as they may deem advisable, and the Committees or any person to whom they have delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committees or such person may have under the Plan; provided, that the Committees may not delegate any duties to a member of the Board of Directors who would not qualify as a "disinterested person" to administer the Plan as contemplated by Rule 16b-3, as amended, or other applicable rules under the Exchange Act. The Committees may employ attorneys, consultants, accountants or other persons and the Committees, the Corporation and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committees in good faith shall be final and binding upon all employees who have received awards, the Corporation and all other interested 3 persons. Notwithstanding the foregoing, any action taken or any interpretation or determination made by the Committees after the occurrence of a "Change in Control" (as defined in paragraph 7(c) hereof) which adversely affects the rights of any employee with respect to any award made to the employee hereunder shall be subject to judicial review under a "de novo" rather than a deferential standard. No member or agent of the Committees shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or awards made thereunder, and all members and agents of the Committees shall be fully protected by the Corporation in respect of any such action, determination or interpretation. 4. Eligibility; Factors to be Considered in Making Awards (a) Only employees of the Corporation or its subsidiaries may receive awards under the Plan. The term "subsidiary" means any corporation one hundred (100%) percent of the common stock of which is owned, directly or indirectly, by the Corporation. A director of the Corporation or of a subsidiary who is not also an employee will not be eligible to receive an award. (b) In determining the employees to whom awards shall be granted and the number of shares or units to be covered by each award, the Committee shall take into account the nature of the employee's duties, his or her present and potential contributions to the success of the Corporation and such other factors as it shall deem relevant in connection with accomplishing the purposes of the Plan. (c) Awards may be granted singly, in combination or in tandem and may be made in combination or in tandem with or in replacement of, or as alternatives to, awards or grants under any other employee plan maintained by the Corporation or its subsidiaries. An award made in the form of an option, a unit or a right may provide, in the discretion of the committee, for (i) the crediting to the account of, or the current payment to, each employee who has such an award of an amount equal to the cash dividends and stock dividends paid by the Corporation upon one share of Common Stock for each restricted unit, or share of Common Stock subject to an option or right, included in such award, and for each restricted unit which is the subject of a Deferral ("Dividend Equivalents"), or (ii) the deemed reinvestment of such Dividend Equivalents and stock dividends in shares of Common Stock or the deemed reinvestment of units in additional units , which deemed reinvestment in each case shall be deemed to be made in accordance with the provisions of paragraph 10 and credited to the Employee's account ("Additional Deemed Shares"). Such Additional Deemed Shares shall be subject to the same restrictions (including but not limited to provisions regarding forfeitures) applicable with respect to the option, unit or right with respect to which such credit is made. Dividend Equivalents not deemed reinvested as stock dividends shall not be subject to forfeiture, and may bear amounts 4 equivalent to interest or cash dividends as the Committee may determine. An employee who has been granted incentive stock options under the Plan may be granted an additional award or awards, subject to such limitations as may be imposed by the Code with respect to incentive stock options. (d) The Committee, in its sole discretion, may grant to an employee who has been granted an award under the Plan or any other employee plan maintained by the Corporation, any of its subsidiaries, or any successor thereto, in exchange for the surrender and cancellation of such award, a new award in the same or a different form and containing such terms, including without limitation a price which is different (either higher or lower) than any price provided in the award so surrendered and cancelled, as the Committee may deem appropriate. 5. Option Price (a) The purchase price of the Common Stock covered by each option shall be determined by the Committee; provided, however, that in the case of incentive stock options, the purchase price shall not be less than 100% of the fair market value of the Common Stock on the date the option is granted. Fair market value shall mean the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape for the date on which the option is granted, or if there are no sales on such date, on the next preceding day on which there were sales. Such price shall be subject to adjustment as provided in paragraph 13. The price so determined shall also be applicable in connection with the exercise of any related right. (b) The purchase price of the shares as to which an option is exercised shall be paid in full at the time of exercise; payment may be made in cash, which may be paid by check or other instrument acceptable to the Corporation, in shares of the Common Stock, valued at the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape for the date of exercise, or if there were no sales on such date, on the next preceding day on which there were sales, or (if permitted by the Committee and subject to such terms and conditions as it may determine) by surrender of outstanding awards under the Plan. In addition, the employee shall pay any amount necessary to satisfy applicable federal, state or local tax requirements promptly upon notification of the amount due. The Committee may permit such amount to be paid in shares of Common Stock previously owned by the employee, or a portion of the shares of Common Stock that otherwise would be distributed to such employee upon exercise of the option, or a combination of cash and shares of such Common Stock. 5 6. Term of Options The term of each incentive stock option granted under the Plan shall be such period of time as the Committee shall determine, but not more than ten years from the date of grant, subject to earlier termination as provided in paragraphs 11 and 12. The term of each non-qualified stock option granted under the Plan shall be such period of time as the Committee shall determine, subject to earlier termination as provided in paragraphs 11 and 12. 7. Exercise of Options (a) Each option shall become exercisable in whole or in part, as the Committee shall determine provided, however, that the Committee may also, in its discretion, accelerate the exercisability of any option in whole or in part at any time. (b) Subject to the provisions of the Plan and unless otherwise provided in the option agreement, an option granted under the Plan shall become exercisable in full at the earliest of the employee's death, Eligible Retirement (as defined below), or Total Disability (as defined in paragraph 12). For purposes of this Plan, the term "Eligible Retirement" shall mean the date upon which an employee, having attained an age of not less than fifty-five, terminates his or employment with the Corporation and all of its subsidiaries, provided that such employee is immediately eligible to receive a pension (whether or not he or she otherwise elects to defer such receipt) under Section 3.1 or 3.3 of the "Employee Pension Plan" maintained by any subsidiary or subsidiaries of the Corporation for salaried employees, or any successor plan thereto. (c) Notwithstanding the foregoing, an option shall become immediately exercisable as to all shares of Common Stock remaining subject to the option on or following a "Change in Control" of the Corporation (the date upon which such event occurs shall be referred to for purposes of this Plan as an "Acceleration Date"). A "Change in Control" shall mean the occurrence during the term of the Plan of: (1) An acquisition (other than directly from the Corporation) of any Common Stock or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, 6 Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non- Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board of Directors (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board of Directors; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization involving the Corporation, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Corporation where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, 7 or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or Common Stock, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (d) An option may be exercised, at any time or from time to time (subject, in the case of an incentive stock option, to such restrictions as may be imposed by the Code), as to any or all full shares as to which the option has become exercisable, provided, however, that an option may not be exercised at any one time as to less than 100 shares (or less than the number of shares as to which the option is then exercisable, if that number is less than 100 shares). (e) Subject to the provisions of paragraphs 11 and 12, in the case of incentive stock options, no option may be exercised at any time unless the holder thereof is then an employee of the 8 Corporation or any of its subsidiaries. For purposes of this subparagraph 7(e), subsidiary shall include, as under Treasury Regulations Section 1.421-7(h)(3) and (4), example (3), any corporation which is a subsidiary of the Corporation during the entire portion of the requisite period of employment during which it is the employer of the holder. (f) Upon the exercise of an option or portion thereof in accordance with the Plan, the option agreement and such rules and regulations as may be established by the Committee, the holder thereof shall have the rights of a shareholder with respect to the shares issued as a result of such exercise. 8. Award and Exercise of Rights (a) A right may be awarded by the Committee in connection with any option granted under the Plan, either at the time the option is granted or thereafter at any time prior to the exercise, termination or expiration of the option ("tandem right"), or separately ("freestanding right"). Each tandem right shall be subject to the same terms and conditions as the related option and shall be exercisable only to the extent the option is exercisable. No right shall be exercisable for cash by a GPU Officer within six months from the date the right is awarded (and then, as to a tandem right, only to the extent the related option is exercisable) or, if the exercise price of the right is not fixed on the date of the award, within six months from the date when the exercise price is so fixed, and in any case only when the GPU Officer's election to receive cash in full or partial satisfaction of the right, as well as the GPU Officer's exercise of the right for cash, is made during a Quarterly Window Period (as defined below); provided, that a right may be exercised by a GPU Officer for cash outside a Quarterly Window Period if the date of exercise is automatic or has been fixed in advance under the Plan and is outside the GPU Officer's control. The term "Quarterly Window Period" shall mean the period beginning on the third business day following the date of release of each of the Corporation's quarterly and annual summary statements of sales and earnings and ending on the twelfth business day following such release; and the date of any such release shall be deemed to be the date it either (A) appears on a wire service, (B) appears on a financial news service, (C) appears in a newspaper of general circulation, or (D) is otherwise made publicly available, for example, by press releases to a wire service, financial news service, or newspapers or general circulation. Subject to the foregoing, a right shall be exercisable (as to a tandem right, only to the extent the related option is exercisable) on or after an Acceleration Date. (b) A right shall entitle the employee upon exercise in accordance with its terms (subject, in the case of a tandem right, to the surrender unexercised of the related option or any 9 portion or portions thereof which the employee from time to time determines to surrender for this purpose) to receive, subject to the provisions of the Plan and such rules and regulations as from time to time may be established by the Committee, a payment having an aggregate value equal to the product of (A) the excess of (i) the fair market value on the exercise date of one share of Common Stock over (ii) the exercise price per share, in the case of a tandem right, or the price per share specified in the terms of the right, in the case of a freestanding right, multiplied by (B) the number of shares with respect to which the right shall have been exercised. The payment may be made in the form of all cash, all shares of Common Stock, or a combination thereof, as elected by the employee, subject (where the employee is a GPU Officer) to paragraph 8(a) hereof. (c) The exercise price per share specified in a right shall be as determined by the Committee, provided that, in the case of a tandem right accompanying an incentive stock option, the exercise price shall be not less than fair market value of the Common Stock subject to such option on the date of grant. (d) If upon the exercise of a right the employee is to receive a portion of the payment in shares of Common Stock, the number of shares shall be determined by dividing such portion by the fair market value of a share on the exercise date. The number of shares received may not exceed the number of shares covered by any option or portion thereof surrendered. Cash will be paid in lieu of any fractional share. (e) No payment will be required from an employee upon exercise of a right, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld or paid promptly by the employee upon notification of the amount due and prior to or concurrently with delivery of cash or a certificate representing shares. The Committee may permit such amount to be paid in shares of Common Stock previously owned by the employee, or a portion of the shares of Common Stock that otherwise would be distributed to such employee upon exercise of the right, or a combination of cash and shares of such Common Stock. (f) The fair market value of a share shall mean the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape for the date of exercise, or if there are no sales on such date, on the next preceding day on which there were sales; provided, however, that in the case of rights that relate to an incentive stock option, the Committee may prescribe, by rules of general application, such other measure of fair market value as the Committee may in its discretion determine but not in excess of the maximum amount that would be permissible under Section 422 of the Code without disqualifying such option under Section 422. 10 (g) Upon exercise of a tandem right, the number of shares subject to exercise under the related option shall automatically be reduced by the number of shares represented by the option or portion thereof surrendered. (h) A right related to an incentive stock option may only be exercised if the fair market value of a share of Common Stock on the exercise date exceeds the option price. 9. Non-Transferability of Options, Rights and Units; Holding Periods for GPU Officers (a) Options, rights, and units granted under the Plan shall not be transferable by the grantee thereof otherwise than by will or the laws of descent and distribution; provided, that the designation of a beneficiary by an employee shall not constitute a transfer; and options and rights may be exercised during the lifetime of the employee only by the employee or, unless such exercise would disqualify an option as an incentive stock option, by the employee's guardian or legal representative. (b) Notwithstanding anything contained in this Plan to the contrary, (i) any shares of Common Stock awarded hereunder to a GPU Officer may not be transferred or disposed of for at least six months from the date of award thereof, (ii) any option, right or unit awarded hereunder to a GPU Officer, or the shares of Common Stock into which any such option, right or unit is exercised or converted, may not be transferred or disposed of for at least six months following the date of acquisition by the GPU Officer of such option, right or unit, and (iii) the Committee shall take no action whose effect would cause a GPU Officer to be in violation of clause (i) or (ii) above. 10. Award and Delivery of Restricted Shares or Restricted Units (a) At the time an award of restricted shares or restricted units is made, the Committee shall establish a period of time (the "Restricted Period") applicable to such award. Each award of restricted shares or restricted units may have a different Restricted Period. The Committee may, in its sole discretion, at the time an award is made, prescribe conditions for the incremental lapse of restrictions during the Restricted Period and for the lapse or termination of restrictions upon the satisfaction of other conditions in addition to or other than the expiration of the Restricted Period with respect to all or any portion of the restricted shares or restricted units. Subject to Section 9 hereof, the Committee may also, in its sole discretion, shorten or terminate the Restricted Period, or waive any conditions for the lapse or termination of restrictions with respect to all or any portion of the restricted shares or 11 restricted units. Notwithstanding the foregoing but subject to Section 9 hereof, all restrictions shall lapse, and the Restricted Period shall terminate, with respect to all restricted shares or restricted units upon the earliest to occur of an employee's Eligible Retirement, death, Total Disability or the occurrence of an Acceleration Date. (b) (1) Unless such shares are issued as uncertificated shares pursuant to subparagraph (3) below, a stock certificate representing the number of restricted shares granted to an employee shall be registered in the employee's name but shall be held in custody by the Corporation or an agent therefor for the employee's account. The employee shall generally have the rights and privileges of a shareholder as to such restricted shares, including the right to vote such restricted shares, except that, subject to the provisions of paragraph 11, the following restrictions shall apply: (i) the employee shall not be entitled to delivery of the certificate until the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Committee; (ii) none of the restricted shares may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period and until the satisfaction of any other conditions prescribed by the Committee at the time of award; and (iii) all of the restricted shares shall be forfeited and all rights of the employee to such restricted shares shall terminate without further obligation on the part of the Corporation unless the employee has remained an employee of the Corporation or any of its subsidiaries until the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Committee at the time of award applicable to such restricted shares. At the discretion of the Committee, (i) cash and stock dividends with respect to the restricted shares may be either currently paid or withheld by the Corporation for the employee's account, and interest may be paid on the amount of cash dividends withheld at a rate and subject to such terms as determined by the Committee or (ii) the Committee may require that all cash dividends be applied to the purchase of additional shares of Common Stock, and such purchased shares, together with any stock dividends related to such restricted shares (such purchased shares and stock dividends are hereafter referred to as "Additional Restricted Shares") shall be treated as Additional Shares, subject to forfeiture on the same terms and conditions as the original grant of the restricted shares to the employee. (2) The purchase of any such Additional Restricted Shares shall be made either (x) through the Corporation's Dividend Reinvestment and Stock Purchase Plan, in which event the price of such shares so purchased through the reinvestment of dividends shall be as determined in accordance with the provisions of that plan and no stock certificate representing such Additional Restricted Shares shall be registered in the employee's name or (y) in accordance with such alternative procedure as is 12 determined by the Committee in which event the price of such purchased shares shall be the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape for the date on which such purchase is made, or if there were no sales on such date, the next preceding day on which there were sales. In the event that the Committee shall not require reinvestment, cash or stock dividends so withheld by the Committee shall not be subject to forfeiture. Upon the forfeiture of any restricted shares (including any Additional Restricted Shares), such forfeited shares shall be transferred to the Corporation without further action by the employee. The employee shall have the same rights and privileges, and be subject to the same restrictions, with respect to any shares received pursuant to paragraph 13. (3) Not-withstanding anything herein to the contrary, shares representing Restricted Shares or Additional Restricted Shares may be issued as uncertificated shares. (c) Upon the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Committee at the time of award, or at such earlier time as provided for in paragraph 11, the restrictions applicable to the restricted shares (including Additional Restricted Shares) shall lapse and a stock certificate for the number of restricted shares (including any Additional Restricted Shares) with respect to which the restrictions have lapsed shall be delivered, free of all such restrictions, except any that may be imposed by law, to the employee or the employee's beneficiary or estate, as the case may be. The Corporation shall not be required to deliver any fractional share of Common Stock but will pay, in lieu thereof, the fair market value (determined as of the date the restrictions lapse) of such fractional share to the employee or the employee's beneficiary or estate, as the case may be. No payment will be required from the employee upon the issuance or delivery of any restricted shares, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld or paid promptly upon notification of the amount due and prior to or concurrently with the issuance or delivery of a certificate representing such shares. The Committee may permit such amount to be paid in shares of Common Stock previously owned by the employee, or a portion of the shares of Common Stock that otherwise would be distributed to such employee upon the lapse of the restrictions applicable to the restricted shares, or a combination of cash and shares of such Common Stock. (d) In the case of an award of restricted units, no shares of Common Stock shall be issued at the time the award is made, and the Corporation shall not be required to set aside a fund for the payment of any such award. 13 (e) Subject to subparagraph (g) below: (i) Upon the expiration or termination of the Restricted Period or the occurrence of an Acceleration Date and the satisfaction of any other conditions prescribed by the Committee or at such earlier time as provided for in paragraph 11, the Corporation shall deliver to the employee or the employee's beneficiary or estate, as the case may be, one share of Common Stock for each restricted unit with respect to which the restrictions have lapsed ("vested unit"). (ii) In addition, if the Committee has not required the deemed reinvestment of such Dividend Equivalents pursuant to paragraph 4, at such time the Corporation shall deliver to the employee cash equal to any Dividend Equivalents or stock dividends credited with respect to each such vested unit and, to the extent determined by the Committee, the interest thereupon. However, if the Committee has required such deemed reinvestment in connection with such restricted unit, in addition to the stock represented by such vested unit, the Corporation shall deliver the number of Additional Deemed Shares credited to the employee with respect to such vested unit. (iii) Notwithstanding the foregoing, the Committee may, in its sole discretion, elect to pay cash or part cash and part Common Stock in lieu of delivering only Common Stock for the vested units and related Additional Deemed Shares. If a cash payment is made in lieu of delivering Common Stock, the amount of such cash payment shall be equal to the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape for the date on which the Restricted Period lapsed with respect to such vested unit and related Additional Deemed Shares, or if there are no sales on such date, on the next preceding day on which there were sales. (f) Upon the occurrence of an Acceleration Date, all outstanding vested units (including restricted units whose restrictions have lapsed as a result of the occurrence of such acceleration date) and credited Dividend Equivalents or related Additional Deemed Shares shall be payable as soon as practicable but in no event later than 90 days after such Acceleration Date in cash, in shares of Common Stock, or part in cash and part in Common Stock, as the Committee, in its sole discretion, shall determine. (i) Subject to subparagraph (g) below, to the extent that an employee receives cash in payment for his or her vested units and Additional Deemed Shares, such employees shall receive an amount equal to the product of (x) the number of vested units and Additional Deemed Shares credited to such employee's account for which such employee is receiving payment in cash multiplied by (y) the highest 14 closing price per share of Common Stock occurring during the ninety (90) day period preceding and the ninety (90) day period following the Acceleration Date (the "Multiplication Factor"). (ii) Subject to subparagraph (g) below, to the extent that an employee receives Common Stock in payment for his or her vested units and Additional Deemed Shares, such employee shall receive the number of shares of Common Stock determined by dividing (x) the product of (I) the number of vested units and Additional Deemed Shares credited to such employee's account for which such employee is receiving payment in Common Stock multiplied by (II) the Multiplication Factor, by (y) the fair market value per share of the Common Stock for the day preceding the payment date, or if there are no sales on such date, on the next preceding day on which there were sales. (g) No payment will be required from the employee upon the award of any restricted units, the crediting or payment of any Dividend Equivalents or Additional Deemed Shares, or the delivery of Common Stock or the payment of cash in respect of vested units, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld or paid promptly upon notification of the amount due. The Committee may permit such amount to be paid in shares of Common Stock previously owned by the employee, or a portion of the shares of Common Stock that otherwise would be distributed to such employee in respect of vested units and Additional Deemed Shares, or a combination of cash and shares of such Common Stock. (h) In addition, the Committee shall have the right, in its absolute discretion, upon or prior to the vesting of any restricted shares (including Additional Restricted Shares) and restricted units (including Additional Deemed Shares) to award cash compensation to the employee for the purpose of aiding the employee in the payment of any and all federal, state and local income taxes payable as a result of such vesting, if the performance of the Corporation during the Restricted Period meets such criteria as the Committee shall have prescribed. (i) Notwithstanding any other provision in this paragraph 10 to the contrary, any payment of cash and/or delivery of any shares of Common Stock otherwise required to be made hereunder on any date with respect to any restricted units awarded to an employee, or with respect to any cash compensation awarded to an employee pursuant to subparagraph (h) above, may be deferred, at the employee's election, either under this Plan or under the GPU System Companies Deferred Compensation Plan for Elected Officers, to the extent such deferral is permitted under, and upon such terms and conditions as may be set forth in, the written agreement between the employee and the Corporation (whether as initially entered into, or as subsequently amended) evidencing the award of such units, or cash compensation, to the employee. 15 11. Termination of Employment In the event that the employment of an employee to whom an option or right has been granted under the Plan shall be terminated for any reason other than as set forth in paragraph 12, such option or right may, subject to the provisions of the Plan, be exercised (but only to the extent that the employee was entitled to do so at the termination of his or her employment) at any time within three (3) months after such termination, but in no case later than the date on which the option or right terminates. Unless otherwise determined by the Committee, if an employee to whom restricted shares or restricted units have been granted ceases to be an employee of the Corporation or of any subsidiary prior to the end of the Restricted Period and the satisfaction of any other conditions prescribed by the Committee at the time of grant for any reason other than as set forth in paragraph 12, the employee shall immediately forfeit all restricted shares and restricted units, including all Additional Restricted Shares or Additional Deemed Shares related thereto. Any option, right, restricted share or restricted unit agreement, or any rules and regulations relating to the Plan, may contain such provisions as the Committee shall approve with reference to the determination of the date employment terminates and the effect of leaves of absence. Any such rules and regulations with reference to any option agreement shall be consistent with the provisions of the Code and any applicable rules and regulations thereunder. Nothing in the Plan or in any award granted pursuant to the Plan shall confer upon any employee any right to continue in the employ of the Corporation of any of its subsidiaries or interfere in any way with the right of the Corporation or any such subsidiary to terminate such employment at any time. 12. Eligible Retirement, Death or Total Disability of Employee If any employee to whom an option, right, restricted share or restricted unit has been granted under the Plan shall die, or suffer a Total Disability, while employed by the Corporation or any of its subsidiaries or if an employee terminates his or her employment pursuant to an Eligible Retirement, such option or right may be exercised, as set forth herein, or such restricted shares or restricted unit shall be deemed to be vested, whether or not the employee was otherwise entitled at such time to exercise such option or right, or be treated as vested in such share or unit. Subject to the restrictions otherwise set forth in this Plan, such option or right shall be exercisable by the employee, a legatee or legatees of the employee under the employee's last will, or by the employee's personal representatives or distributees, whichever is applicable, at any time (but in no case later than the date on which the option or right terminates in accordance with the terms of grant) within 16 three years after the date of the earlier of (i) the employee's death or Total Disability (if the employee shall have died or suffered a Total Disability while employed by the Corporation or its subsidiaries), or (ii) such employee's Eligible Retirement. For purposes of this paragraph 12, "Total Disability" is defined as the permanent inability of an employee, as a result of accident or sickness, to perform any and every duty pertaining to such employee's occupation or employment for which the employee is suited by reason of the employee's previous training, education and experience. 13. Adjustments Upon Changes in Capitalization, etc. Notwithstanding any other provision of the Plan, the Committee may at any time make or provide for such adjustments to the Plan, to the number and class of shares available thereunder or to any outstanding options, restricted shares or restricted units as it shall deem appropriate to prevent dilution or enlargement of rights, including adjustments in the event of distributions to holders of Common Stock other than a normal cash dividend, changes in the outstanding Common Stock by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations and the like. In the event of any offer to holders of Common Stock generally relating to the acquisition of their shares, the Committee may make such adjustment as it deems equitable in respect of outstanding options, rights, and restricted units including in the Committee's discretion revision of outstanding options, rights, and restricted units so that they may be exercisable for or payable in the consideration payable in the acquisition transaction. Any such determination by the Committee shall be conclusive and binding on all parties. No adjustment shall be made in the minimum number of shares with respect to which an option may be exercised at any time. Any fractional shares resulting from such adjustments to options, rights, limited rights, or restricted units shall be eliminated. 14. Effective Date The Plan as amended shall become effective as of June 1, 1990, subject to the approval of the Corporation's shareholders at the Corporation's 1990 Annual Meeting of Shareholders. The Committee may, in its discretion, grant awards under the Plan, the grant, exercise or payment of which shall be expressly subject to the conditions that to the extent required at the time of grant, exercise or payment (i) the shares of Common Stock covered by such awards shall be duly listed, upon official notice of issuance, upon the New York Stock Exchange, and (ii) if the Corporation deems it necessary or desirable a Registration Statement under the Securities Act of 1933 with respect to such shares shall be effective. 17 15. Termination and Amendment The Board of Directors of the Corporation may suspend, terminate, modify or amend the Plan, provided that if any such amendment requires shareholder approval to meet the requirement of the then applicable rules under Section 16(b) of the Exchange Act, such amendment shall be subject to the approval of the Corporation's shareholders; and provided further that no amendment or modification to the penultimate sentence of Section 3(c), to Section 7(c) or to this Section 15, nor any suspension or termination of the Plan, effectuated (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, shall be effective if the amendment, modification, suspension or termination adversely affects the rights of any employee under the Plan. If the Plan is terminated, the terms of the Plan shall, notwithstanding such termination, continue to apply to awards granted prior to such termination. In addition, no amendment, modification, suspension or termination of the Plan shall adversely affect the rights of any employee with respect to any award (including without limitation any right with respect to the timing and method of payment of any award) granted to the employee prior to the date of the adoption of such amendment, modification, suspension or termination without such employee's written consent. 16. Written Agreements Each award of options, rights, restricted shares or restricted units shall be evidenced by a written agreement, executed by the employee and the Corporation, which shall contain such restrictions, terms and conditions as the Committee may require. 17. Effect on Other Stock Plans The adoption of the Plan shall have no effect on awards made or to be made pursuant to other stock plans covering employees of the Corporation, its subsidiaries, or any successors thereto. 18 EX-23.A 24 EXHIBIT 23A EXHIBIT 23-A CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of GPU, Inc. on Forms S-8 (File Nos. 33-32325, 33- 32326, 33-34661, 33-32327, 33-51037, 33-32328 and 33-51035) and Forms S-3 (File No. 33-30765) of our report dated February 5, 1997, on our audits of the consolidated financial statements and financial statement schedule of GPU, Inc. and Subsidiaries as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which report is included in this Annual Report on Form 10-K, for the year ended December 31, 1996. New York, New York March 10, 1997 EX-23.B 25 EXHIBIT 23B EXHIBIT 23-B CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Jersey Central Power & Light Company on Form S-3 (File No. 33-49463) of our report dated February 5, 1997, on our audits of the consolidated financial statements and financial statement schedule of Jersey Central Power & Light Company as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which report is included in this Annual Report on Form 10-K, for the year ended December 31, 1996. New York, New York March 10, 1997 EX-23.C 26 EXHIBIT 23C EXHIBIT 23-C CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Metropolitan Edison Company on Form S-3 (File Nos. 33-51001, 33-53673 and 33-53673-01) of our report dated February 5, 1997, on our audits of the consolidated financial statements and financial statement schedule of Metropolitan Edison Company and Subsidiaries as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which report is included in this Annual Report on Form 10-K, for the year ended December 31, 1996. New York, New York March 10, 1997 EX-23.D 27 EXHIBIT 23D EXHIBIT 23-D CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Pennsylvania Electric Company on Form S-3 (File Nos. 33-49669, 33-53677 and 33-53677-01) of our report dated February 5, 1997, on our audits of the consolidated financial statements and financial statement schedule of Pennsylvania Electric Company and Subsidiaries as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which report is included in this Annual Report on Form 10-K, for the year ended December 31, 1996. New York, New York March 10, 1997 EX-21.A 28 EXHIBIT 21A Exhibit 21(A) JERSEY CENTRAL POWER & LIGHT COMPANY SUBSIDIARIES OF THE REGISTRANT NAME OF STATE OF SUBSIDIARIES BUSINESS INCORPORATION JCP&L CAPITAL, L.P SPECIAL-PURPOSE DELAWARE EX-21.B 29 EXHIBIT 21B Exhibit 21(B) METROPOLITAN EDISON COMPANY SUBSIDIARIES OF THE REGISTRANT NAME OF STATE OF SUBSIDIARIES BUSINESS INCORPORATION YORK HAVEN POWER COMPANY HYDROELECTRIC GENERATING NEW YORK STATION MET-ED CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE EX-21.C 30 EXHIBIT 21C Exhibit 21(C) PENNSYLVANIA ELECTRIC COMPANY SUBSIDIARIES OF THE REGISTRANT NAME OF STATE OF SUBSIDIARIES BUSINESS INCORPORATION NINEVEH WATER WATER SERVICE PENNSYLVANIA COMPANY THE WAVERLY ELECTRIC LIGHT ELECTRIC DISTRIBUTION PENNSYLVANIA AND POWER COMPANY PENELEC CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE EX-27.A 31 EXHIBIT 27A
UT 0000040779 GPU, INC. 1,000 US DOLLARS 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 PER-BOOK 6,387,823 1,541,191 897,174 2,115,031 0 10,941,219 314,458 750,569 2,068,976 3,047,587 444,000 66,478 3,177,016 256,567 0 8,980 168,583 10,000 6,623 143,818 3,611,567 10,941,219 3,918,089 166,572 3,243,238 3,409,810 508,279 30,253 538,532 240,180 298,352 0 298,352 231,956 184,675 642,669 2.47 2.47 INCLUDES REACQUIRED COMMON STOCK OF $86,416. INCLUDES SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $330,000. INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $28,888, PREFERRED STOCK DIVIDENDS OF SUBSIDIARIES OF $15,519, AND GAIN ON REACQUIRED PREFERRED STOCK OF $9,288.
EX-27.B 32 EXHIBIT 27B
UT 0000053456 JERSEY CENTRAL POWER & LIGHT COMPANY 1,000 US DOLLARS 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 PER-BOOK 2,934,684 388,308 389,342 997,585 0 4,709,919 153,713 510,769 825,001 1,489,483 239,000 37,741 1,173,091 31,800 0 0 100,075 10,000 933 96,150 1,531,646 4,709,919 2,057,918 71,080 1,729,532 1,800,612 257,306 5,381 262,687 106,384 156,303 13,072 143,231 135,000 89,648 341,898 0 0 INCLUDES COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $125,000. INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $10,700. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
EX-27.C 33 EXHIBIT 27C
UT 0000065350 METROPOLITAN EDISON COMPANY 1,000 US DOLLARS 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 PER-BOOK 1,584,873 142,736 183,954 561,415 0 2,472,978 66,273 370,200 264,044 700,517 100,000 12,056 563,252 50,667 0 0 40,020 0 380 29,964 976,122 2,472,978 910,408 49,844 733,664 783,508 126,900 1,271 128,171 59,104 69,067 944 71,845 60,000 45,373 165,572 0 0 REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES. INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $9,000. INCLUDES GAIN ON PREFERRED STOCK REACQUISITION OF $3,722. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
EX-27.D 34 EXHIBIT 27D
UT 0000077227 PENNSYLVANIA ELECTRIC COMPANY 1,000 US DOLLARS 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 PER-BOOK 1,811,337 61,465 217,900 444,363 0 2,535,065 105,812 285,486 363,702 755,000 105,000 16,681 656,459 98,700 0 8,980 26,010 0 4,129 15,881 848,225 2,535,065 1,019,645 45,648 840,288 885,936 133,709 (553) 133,156 63,347 69,809 1,503 73,872 40,000 49,654 138,657 0 0 REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES. INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $9,188. INCLUDES GAIN ON PREFERRED STOCK REACQUISITIONS OF $5,566. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
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